Financial Market Linkages in South Asia: Evidence Using a Multivariate GARCH Model

Regional integration of the financial markets is the building-block for globalisation and internationalisation. Many regions around the world have recently been engaged in such regional economic and financial market integration to form the basis of a more complex international financial system. The recent developments in South Asia and the revived activities under the SAARC forum have raised some hopes for a more sustained economic development in the regional economies. It is timely, therefore, to investigate the prospects of regional financial market integration in the South Asian region. In this perspective, this paper analyses the currency market integration within four South Asian countries and with their major trading partners. For empirical estimation, we use data from a sample of four South Asian countries, namely, India, Pakistan, Bangladesh, and Sri Lanka. The paper examines the nature of the causal relationship between exchange rates in the sample countries and their major trading partners. Both the short-run and the long-run causal relationships between these markets are examined using high-frequency data of exchange rates. The paper also explores whether the causal linkages between these variables are of similar intensity across the country and across the market. The nature of the mean and volatility transmission between stock and foreign exchange markets is explored through multivariate exponential GARCH model, which is capable of capturing asymmetries in the volatility transmission mechanism in both the short run and the long run within a co-integration framework. The departing feature of this approach is that it captures both linear and non-linear relationships, which are linked through second order moments. We believe that this to be fresh research on this issue for South Asia and it may have important implications for any future policy for the region.Financial Market, South Asia, GARCH Model

Financial Market Linkages in South Asia: Evidence Using a Multivariate GARCH Model

The economic and social benefits of more openness and internationalisation are well supported by both academics and policy-makers. Many countries are also trying to become part of the world trade bloc such as the World Trade Organisation (WTO) or AFTA. Efforts are also made to strengthen the existing regional economic and trade coordination or establish new regional economic and financial integration. Unfortunately, at the time (during the 1980s and 1990s) when many emerging economies in East Asia were involved in openness, internationalisation and regional economic and financial integration, the South Asian countries wasted their resources in dealing with political crisis (such as Bangladesh), internal conflicts (such as Sri Lanka) or border issues (such as India and Pakistan). It is only recently that regimes have realised that a peaceful economic environment is essential to attract foreign investment, pursue a pro-growth policy and achieve a sustainable growth. The recent dialogue between Pakistan and India and some progress in SAARC consultation are a few steps towards these goals

Financial Market Integration in Pakistan: Evidence Using Post-1999 Data

The recent wave of financial sector reforms and internationalisation in emerging markets has increased perceived interlinkages within various sectors of national financial markets. For example, the existence of a strong linkage between stock prices and exchange rates is a popular topic in academic research. Similarly, changes in stock prices and exchange rates are expected to influence movements in interest rates. A number of hypotheses suggest such a causal relationship. For instance, using a goods market approach, any changes in the value of currency would affect the competitiveness of multinational firms and hence influence stock prices [Dornbusch and Fischer (1980)]. Similarly, the hypotheses of ‘exchange rate pass-through’ and ‘interest rate pass-through’ suggest that changes in exchange rates and/or interest rates could affect stock prices. The portfolio balance model suggests that fluctuations in stock prices influence exchange rate changes

Signatures of the impact of flare ejected plasma on the photosphere of a sunspot light-bridge

We investigate the properties of a sunspot light-bridge, focusing on the changes produced by the impact of a plasma blob ejected from a C-class flare. We observed a sunspot in active region NOAA 12544 using spectropolarimetric raster maps of the four Fe I lines around 15655 \AA\ with the GREGOR Infrared Spectrograph (GRIS), narrow-band intensity images sampling the Fe I 6173 \AA\ line with the GREGOR Fabry-P\'erot Interferometer (GFPI), and intensity broad band images in G-band and Ca II H band with the High-resolution Fast Imager (HiFI). All these instruments are located at the GREGOR telescope at the Observatorio del Teide, Tenerife, Spain. The data cover the time before, during, and after the flare event. The analysis is complemented with Atmospheric Imaging Assembly (AIA) and Helioseismic and Magnetic Imager (HMI) data from the Solar Dynamics Observatory (SDO). The physical parameters of the atmosphere at differents heights were inferred using spectral-line inversion techniques. We identify photospheric and chromospheric brightenings, heating events, and changes in the Stokes profiles associated to the flare eruption and the subsequent arrival of the plasma blob to the light bridge, after traveling along an active region loop. The measurements suggest that these phenomena are the result of reconnection events driven by the interaction of the plasma blob with the magnetic field topology of the light bridge.Comment: Accepted for publication in A&

Theoretical modeling of propagation of magneto-acoustic waves in magnetic regions below sunspots

We use 2D numerical simulations and eikonal approximation, to study properties of MHD waves traveling below the solar surface through the magnetic structure of sunspots. We consider a series of magnetostatic models of sunspots of different magnetic field strengths, from 10 Mm below the photosphere to the low chromosphere. The purpose of these studies is to quantify the effect of the magnetic field on local helioseismology measurements by modeling waves excited by sub-photospheric sources. Time-distance propagation diagrams and wave travel times are calculated for models of various field strength and compared to the non-magnetic case. The results clearly indicate that the observed time-distance helioseismology signals in sunspot regions correspond to fast MHD waves. The slow MHD waves form a distinctly different pattern in the time-distance diagram, which has not been detected in observations. The numerical results are in good agreement with the solution in the short-wavelength (eikonal) approximation, providing its validation. The frequency dependence of the travel times is in a good qualitative agreement with observations.Comment: accepted by Ap

Ring diagram analysis of the characteristics of solar oscillation modes in active regions

The presence of intense magnetic fields in and around sunspots is expected to modify the solar structure and oscillation frequencies. Applying the ring diagram technique to data from the Michelson Doppler Imager (MDI) on board the Solar and Heliospheric Observatory (SOHO), we analyze the characteristics of high-degree f and p modes near active regions and compare them with the characteristics of the modes in quiet regions. As expected from earlier results, the f- and p-mode frequencies of high degree modes are found to be significantly larger in magnetically active regions. In addition, we find that the power in both f and p modes is lower in active regions, while the widths of the peaks are larger, indicating smaller lifetimes. We also find that the oscillation modes are more asymmetric in active regions than those in quiet regions, indicating that modes in active regions are excited closer to the surface. While the increase in mode frequency is monotonic in frequency, all other characteristics show more complex frequency dependences.Comment: To appear in Ap