Abstract:
This study examines the financial integration between India and Sri Lanka
amid the ongoing Sri Lankan economic crisis. For accomplishing this
objective, daily data of the National Stock Exchange (NSE) and Colombo
Stock Exchange (CSE) were taken for the past 10 years as a proxy for the
economic barometers of both countries. The study applied the Panel ARDL
approach intending to test the horizon of the relationship i.e., long run or
short run relationship and the Ordinary Least Square (OLS) method for
identifying the intensity of interdependence between the two stock indices.
The study also tried to gauge the impact of the current
economic crisis in the relationship between India and Sri Lanka. Results of
the Panel ARDL approach indicated that no long-run cointegration exists
between Indian and Sri Lankan stock markets. Results of OLS suggested that
CSE accounts for 44% variation in NSE and this relationship further
deteriorated during the crisis period.
