Online from: 2012
Subject Area: International Business
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|Title:||Financial integration in selected South Asian countries|
|Author(s):||Anil Perera, (Central Bank of Sri Lanka, Colombo, Sri Lanka and Faculty of Business and Economics, Monash University, Caulfield East, Australia), J. Wickramanayake, (Faculty of Business and Economics, Monash University, Caulfield East, Australia)|
|Citation:||Anil Perera, J. Wickramanayake, (2012) "Financial integration in selected South Asian countries", South Asian Journal of Global Business Research, Vol. 1 Iss: 2, pp.210 - 237|
|Keywords:||Bangladesh, Bonds, Financial integration, Financial markets, India, Pakistan, South Asian Association for Regional Co-operation, Sri Lanka, Stock returns|
|Article type:||Research paper|
|DOI:||10.1108/20454451211252741 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||The authors wish to thank Dimuthu Samaratunga, Erandi Liyanage, Nishantha Jayaweera, Nayana Damayanthi, Praneetha Priyamali, Nirosha Raigama, Bhagya Senaratne and Waruna Wikumsiri of Central Bank of Sri Lanka for their support. Also two anonymous referees for insightful comments and suggestions and Chief Editor, Dr Shaista E. Khilji and Associate Editor, Dr Shrimal Perera, for guidance and encouragement. The paper has also benefited from the comments of participants and the reviewer of 18th Annual Multi-Finance Society (MFS) Conference, Rome, Italy held June 26-29, 2011.|
Purpose – The purpose of this paper is to examine financial market integration in major South Asian financial markets: Bangladesh, India, Pakistan and Sri Lanka. Also to identify the required policy interactions and structural changes vital for broader economic integration.
Design/methodology/approach – This research opted for an empirical study employing co-integration and causality techniques using a sample of stock and bond market data for major South Asian countries.
Findings – Empirical results show that both stock and bond returns are co-integrated, indicating common stochastic trends. Stock market integration appears to be much stronger compared to the less developed and data deficient bond markets.
Research limitations/implications – The study relies on widely cited empirical methodology. However, adopting alternative specifications and also allowing for time variant factors while examining inter-linkages between stock and bond markets seem to be appropriate for robustness of results.
Practical implications – Increased integration would help in reducing arbitrage opportunities in these financial markets, having implications for market participants and promoting economic growth through financial deepening, in general. Since the degree of integration is dependent on policy and institutional infrastructure, ongoing efforts to develop financial sectors and reforms would need to be accelerated to further strengthen the degree of convergence between securities markets.
Originality/value – The paper fulfills an identified need to examine financial market integration in the SAARC region, using data for both stock and bond markets. This is the first study to use bond market data for SAARC countries and it also adds to the limited literature of bond market integration.