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. Theoutcome of this study enriches the international finance literature with a special focus on the regional economic bloc.
Highlights
The South Asian Association for Regional Cooperation (SAARC) is an economic and geopolitical organization of eight countries that are primarily located in Asia
Volatility is a consequence of many factors, in this study, the focus has been given on economic progress which is represented by gross domestic products, the size of stock market which is represented by market capitalization, the political stability of the country which is represented by political stability index, the practice of corporate governance by the listed companies which is represented by corporate information disclosure of Bangladesh, India, Nepal, Pakistan, and Sri Lanka from 2003 to 2018
The cointegration nature, volatility reaction toward the variables and positive shocks on volatility authenticate that there is a possibility of capital market integration among the member countries of SAARC, rejecting the third hypothesis
Summary
The South Asian Association for Regional Cooperation (SAARC) is an economic and geopolitical organization of eight countries that are primarily located in Asia. The secretariat is located in Kathmandu, Nepal. The founding members were Bangladesh, India, Nepal, Bhutan, Maldives, Sri Lanka, and Pakistan. The objectives of forming SAARC were to promote welfare economics, quality of life, collective self-reliance to accelerate socio-cultural development in the region. Enhancing collaboration and mutual assistance in the economic, social, cultural, technical, and scientific fields was another top priority of this bloc
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