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Integration and Interdependence Among Equity Markets in South Asia: Measuring Through ARDL Bounds Approach

J. Vineesh Prakash and D. K. Nauriyal

Millennial Asia, 2021, vol. 12, issue 2, 229-251

Abstract: This article examines the degree of integration among the financial markets in South Asia at regional and extra-regional levels by using monthly data collected for the period 2010–2018. It uses autoregressive distributed lag (ARDL) bounds test approach of cointegration, and short-run causalities are obtained under the error correction framework. The bounds testing procedure finds the existence of long-run relations among the four markets when the equity market of India is taken as the dependent variable. Although the bounds testing procedure finds some evidence of integration at the regional level, evidence suggests that integration at the global level is much higher than the integration at the regional level for this region. Another interesting finding is that Pakistan does not exhibit cointegrating relations with the rest of the equity markets in South Asia, and results are inconclusive when developed countries’ equity markets are introduced to the estimated models, which can be attributed to the political instability that Pakistan is consistently plagued with and also its strained relationship with India, thereby hampering capital inflows.

Keywords: Equity markets; cointegration; South Asia; financial integration (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1177/0976399620952737

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Handle: RePEc:sae:millen:v:12:y:2021:i:2:p:229-251