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Do the Stock Markets of South Asia Follow a Random Walk?

Author

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  • Arusha Cooray

Abstract

This paper examines stock market behaviour in India, Sri Lanka, Pakistan, and Bangladesh employing unit root tests, autocorrelation tests and spectral analysis. Evidence suggests that all markets exhibit a random walk. The multivariate cointegration tests based upon the Johansen Juselius (1988, 1990) methodology indicate three long run stochastic trends. The results of the multivariate cointegration tests are corroborated by the Likelihood Ratio block causality tests which indicate a high degree of interdependence between the markets. The generalized impulse response analysis used to examine the effects of a India stock market price shock on the stock price indices of Sri Lanka, Pakistan and Bangladesh show that Pakistan and Sri Lanka are more responsive to price shocks in India than Bangladesh.

Suggested Citation

  • Arusha Cooray, 2004. "Do the Stock Markets of South Asia Follow a Random Walk?," Econometric Society 2004 Australasian Meetings 169, Econometric Society.
    • Handle: RePEc:ecm:ausm04:169
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    File URL: http://repec.org/esAUSM04/up.15801.1077756589.pdf
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    Cited by:

    1. W.I.C.S. Gunasinghe, 2005. "Behaviour of Stock Markets in South Asia," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 6(2), pages 165-191, September.
    2. Hiremath, Gourishankar S & Bandi, Kamaiah, 2009. "On the random walk characteristics of stock returns in India," MPRA Paper 46499, University Library of Munich, Germany.

    More about this item

    Keywords

    stock markets; random walk;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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