Economics at your fingertips  

Regime-Dependent Effects on Stock Market Return Dynamics: Evidence from SAARC Countries

Zobia Israr Ahmed and Khalid Mustafa ()
Additional contact information
Zobia Israr Ahmed: BAMM PECHS Government College for Women, Karachi, Pakistan

Asian Development Policy Review, 2019, vol. 7, issue 2, 111-132

Abstract: This study empirically examines the link between stock market returns and exchange rate fluctuations using monthly data ranging from 1993 to 2016 for selected SAARC countries (Bangladesh, India, Pakistan, and Sri Lanka). In the presence of other macroeconomic factors, dynamic links in the financial markets are investigated using Hamilton?s Markov switching approach. The multivariate analysis reveals that stock market returns develop in accordance with two different regimes: during a crisis and when there is no crisis. The study discovered evidence of switching suggesting that stock markets have persistent volatility in bullish trends and are influenced more by currency returns during both calm and turbulent periods. However, stock markets with persistent volatility in bearish trends are influenced more by other macroeconomic factors, in both periods. This implies that movements in the stock market are regime-dependent and transition probabilities between regimes can be affected by certain macroeconomic factors.

Keywords: Markov switching model; Stock market returns; Exchange rate market; Macroeconomic factors; Financial crises (search for similar items in EconPapers)
JEL-codes: C22 G17 F31 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Asian Development Policy Review is currently edited by Dr. Faqin Lin

More articles in Asian Development Policy Review from Asian Economic and Social Society 2637 E Atlantic Blvd #43110 Pompano Beach, FL 33062, USA.
Bibliographic data for series maintained by Chan Hoi Yan ().

Page updated 2019-09-11
Handle: RePEc:asi:adprev:2019:p:111-132