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Interdependence and dynamic linkages between the emerging stock markets of South Asia

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  • Paresh Narayan
  • Russell Smyth
  • Mohan Nandha

Abstract

The present article examines the dynamic linkages between the stock markets of Bangladesh, India, Pakistan and Sri Lanka using a temporal Granger causality approach by binding the relationship among the stock price indices within a multivariate cointegration framework. We also examine the impulse response functions. Our main finding is that in the long run, stock prices in Bangladesh, India and Sri Lanka Granger‐cause stock prices in Pakistan. In the short run there is unidirectional Granger causality running from stock prices in Pakistan to India, stock prices in Sri Lanka to India and from stock prices in Pakistan to Sri Lanka. Bangladesh is the most exogenous of the four markets, reflecting its small size and modest market capitalization.

Suggested Citation

  • Paresh Narayan & Russell Smyth & Mohan Nandha, 2004. "Interdependence and dynamic linkages between the emerging stock markets of South Asia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 44(3), pages 419-439, November.
    • Handle: RePEc:bla:acctfi:v:44:y:2004:i:3:p:419-439
    DOI: 10.1111/j.1467-629x.2004.00113.x
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