Pakistan Institute of Development Economics

THE PAKISTAN DEVELOPMENT REVIEW 

Dragon’s Entry in South Asia and its Impact on Financial Markets

This study examines the mean and volatility spillover effects from China to Pakistan, India and Sri Lankan stock markets for the period of July 1997 to June 2016 by using ARMAGARCH (1,1) Model. The results provide the evidence that Chinese market shocks transmit to South Asian markets. The study contributes to literature in the sense that in last decade China has emerged as a potential economic partner to influence the South Asian region. The study suggests that in last three years’ the effect of shocks on volatility has reduced significantly. It may be linked to infrastructure development by China in South Asian region and reduction of asymmetries of information. Hence, economic integration of China with Asia is playing a significant role in financial markets of the region. In nutshell economic linkages are translating into financial linkages.

Ahmad Fraz, Arshad Hassan

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