Do the Stock Markets of South Asia Follow a Random Walk?

Arusha Cooray

No 169, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: This paper examines stock market behaviour in India, Sri Lanka, Pakistan, and Bangladesh employing unit root tests, autocorrelation tests and spectral analysis. Evidence suggests that all markets exhibit a random walk. The multivariate cointegration tests based upon the Johansen Juselius (1988, 1990) methodology indicate three long run stochastic trends. The results of the multivariate cointegration tests are corroborated by the Likelihood Ratio block causality tests which indicate a high degree of interdependence between the markets. The generalized impulse response analysis used to examine the effects of a India stock market price shock on the stock price indices of Sri Lanka, Pakistan and Bangladesh show that Pakistan and Sri Lanka are more responsive to price shocks in India than Bangladesh.

Keywords: stock markets; random walk (search for similar items in EconPapers)
JEL-codes: E44 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-ets and nep-rmg
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