Interdependence and dynamic linkages between the emerging stock markets of South Asia

The present article examines the dynamic linkages between the stock markets<br>of Bangladesh, India, Pakistan and Sri Lanka using a temporal Granger causality<br>approach by binding the relationship among the stock price indices within a<br>multivariate cointegration framework. We also examine the impulse response<br>functions. Our main finding is that in the long run, stock prices in Bangladesh,<br>India and Sri Lanka Granger-cause stock prices in Pakistan. In the short run<br>there is unidirectional Granger causality running from stock prices in Pakistan<br>to India, stock prices in Sri Lanka to India and from stock prices in Pakistan to<br>Sri Lanka. Bangladesh is the most exogenous of the four markets, reflecting its<br>small size and modest market capitalization.<br>