Dynamics of relationship between stock markets of SAARC countries during COVID-19 pandemic

Vandana Arya and Shveta Singh

Journal of Economic and Administrative Sciences, 2022, vol. 41, issue 1, 336-356

Abstract: Purpose - The paper investigates the dynamic relationship among the stock markets of South Asian Association of Regional Cooperation (SAARC) countries during the COVID-19 pandemic. Design/methodology/approach - Daily time-series data of four SAARC countries: India, Bangladesh, Pakistan, and Sri Lanka, from February 13th, 2013 to March 31st, 2021 are used. The study considers stock prices prior to the blowout of COVID-19 and during the onset of the pandemic. The novel estimation procedure of the autoregressive distributed lag model is used while the results are also confirmed by post-estimation techniques. Findings - The study confirms that the COVID-19 contagion has adversely influenced the stock returns of SAARC countries. The findings signify that the pattern of cointegration has significantly different regularities in the pattern of causality in the long run and short run during the COVID-19 crisis. Overall, the study revealed that the COVID-19 pandemic has weakened the dynamic connection among the stock markets of SAARC countries. Practical implications - To dampen uncertainties generated by the COVID-19 pandemic, the authorities and central banks should be equipped with efficient strategies and guidelines to cope with the crisis created by the pandemic. Further, governments should focus on assuaging the panic faced by investors and enhancing the confidence of domestic as well as foreign investors. Further, the weakened integration of financial markets during the crisis offers opportunities for speculative and arbitrage gains for investors. Originality/value - The research work is an innovative effort to analyze the impression led by COVID-19 on the SAARC stock markets integration.

Keywords: COVID-19; India; ARDL; Causality; Stock market integration; Spillover; Contagion (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jeaspp:jeas-10-2021-0213

DOI: 10.1108/JEAS-10-2021-0213

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