The IUP Journal of Applied Economics
An Analysis of Interlinkages Among Stock Markets of SAARC Nations

Article Details
Pub. Date : April, 2021
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE10421
Author Name : Jasmeet Kaur, Parminder Kaur Bajaj and Navneet Joshi
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 15



The paper attempts to assess the interlinkages among the equity markets of SAARC nations by examining the degree of co-movement or association in the long run between the selected subject markets. The time-series data is also tested to examine the impact of shock transmission from one market to another (to-and-fro). The timeseries is tested for stationarity using unit root tests. Further, the paper aims at determining the long-term interrelatedness between four member countries of SAARC-India, Pakistan, Sri Lanka and Bangladesh-using the Johansen cointegration methodology. Further, the impact of shocks from one stock market to another is studied using Variance Decomposition (VD) and Impulse Response Function (IRF). The daily closing prices of principal stock markets are used for empirical investigation for the period April 1, 2013 to December 31, 2019. Results from the study propose that no interrelatedness and cointegration exist among the equity markets of the four countries in the long run. Empirical evidence from the variance decomposition and IRF further reconfirms that the level of integration among the SAARC region is low. Overall, the inferences from the study state that each stock market is influenced by price fluctuations in its own market. Also, due to less stringent regulatory environment of the studied stock markets, accept India, there will be opportunity for QIBs to generate value.


The South Asian Association for Regional Cooperation (SAARC) nations have emerged as a significant bloc for the Foreign Direct Investment (FDI) inflows as growth emerged by 3.5% to $54 bn with standalone $42 bn strong FDI inflows in India through the manufacturing, communication, financial services, and M&A activities; Bangladesh and Sri Lanka with $3.6 bn and $1.6 bn respectively; and Pakistan witnessing a drop of 27% in FDI (UNCTAD,