Is Capital Market Integration among the SAARC Countries Feasible? An Empirical Study

Authors

  • Emon Kalyan CHOWDHURY Chittagong Independent University

DOI:

https://doi.org/10.17015/ejbe.2020.025.02

Keywords:

Cointegration, integration, SAARC, stock market, VECM, volatility

Abstract

This paper aims to verify the feasibility of capital market integration among the SAARC member countries by analyzing the reaction of volatility towards the changes in economic, political, and financial factors by taking five particular SAARC countries as a sample. In order to achieve this objective, Gross Domestic Product Per Capita, Political Stability Index, Stock Market Value, Corporate Information Disclosure Index, and DGEN of Bangladesh, Sensex of India, NEPSE of Nepal, KSE100 of Pakistan, and CSE All Shares of Sri Lanka from 2003 to 2018 have been considered. All the data have been found stationary at the first difference. Pedroni, Kao, and Johansen's tests indicate the existence of cointegration among the factors. Panel Vector Error Correction Model observes both long-run and short-run impacts of selected factors on the volatility, thus confirms the possibility of capital market integration among the sample countries. The study strongly recommends market integration as it will increase market competition, reduce financial services costs, small companies can enjoy equity financing, and large companies can enjoy economies of scale. The
outcome of this study enriches the international finance literature with a special focus on the regional economic bloc.

Published

14-05-2020

Issue

Section

Articles