Stock Market Relationship in South Asia: An Empirical Analysis

Abstract

Literature indicates that there are several studies that have focused on stock market relationships and integration but very limited studies are found in this area that have focused for South Asian markets. Few that have studied stock market relationships and market integration in this region have never included Bhutan, probably due to unavailability of data on Bhutanese stock market or because it is too insignificant in terms of regional market. Particularly the relationship between Bhutanese stock market and Indian stock market is expected to be positive and significant given the very close economic ties/dependence with India. Correlation and regression analysis (data sample includes January 2006 to December 2011 for weekly returns) do not show relations between Bhutanese, Indian or any other stock returns except between Indian and Pakistani market returns. Few time varying effects were noticed when correlations were calculated for different set of split data. In general South Asian markets seem quite independent of each other. Indian stock market, which is more proficient in the region, was expected to have some influence but the results do no support this. Based on the Granger causality test, Indian market seems to provide unidirectional effect on most of the neighbouring stock markets.