International Business and Accounting Research Journal
Vol 2, No 2 (2018): July 2018

Financial Contagion and Globalization: Evidence from South Asian Countries

Muhammad Usman Sana Ullah (Department of Finance COMSATS Institute of Information Technology, Islamabad, Pakistan)
Naveed Ul Haq (School of Business and Economics, Department of Finance University of Management and Technology, Lahore, Pakistan)
Hood Laeeq (Othman Yeop Abdullah Graduate School of Business Universiti Utara Malaysia)
Ammar Aftab Raja (School of Business and Economics, Department of Finance University of Management and Technology, Lahore, Pakistan)

Article Info

Publish Date
06 Jul 2018


This study investigates the contagion and globalization between the South Asian (Pakistan, India, Bangladesh and Sri Lanka) and five largest economies (US, UK, China, Japan and Germany) stock markets. Daily stock returns data from 1st July 1997 to 30th June 2015 consisting of total 4695 observation is analyzed.  DCC GARCH is applied to calculate the conditional correlation coefficients to overcome the issue of heteroscedasticity. Null hypothesis of no globalization got rejected eleven times out of twenty while the hypothesis of no contagion got rejected six times. Further analysis of conditional correlation coefficients confirmed the impact of 9/11 attacks, Subprime mortgage crises and Europeans debt crises on the Indian market. Impact of 9/11 attacks also found on Pakistani and Sri Lankan stock exchanges, while Dhaka stock exchange remained independent of all shocks. In sum, the South Asian stock markets remained isolated from the global shocks except India. Isolation of South Asian stock markets from the global shocks is due to their lower integration with the global markets. This study provides some useful recommendations to the investors and policy makers. Results suggests that Indian stock exchange  get  contagion impact from the major economies, so authorities of India should have to take measure to decouple the market from the global shocks. The markets of Bangladesh, Sri Lanka and Pakistan are not properly integrated with global financial system, so the authorities of these countries should have to take proper steps to liberalize the markets. This paper presents the first empirical study on financial contagion and globalization of South Asian countries.

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Economics, Econometrics & Finance


International Business and Accounting Research Journal published by Sekolah Tinggi Ekonomi dan Bisnis Islam Lampung. The journal seeks to consolidate its position as the premier vehicle for the diversification of academic finance. The journal publishes high quality, insightful, well-written papers ...