LAUNCHING ISSUE: Role of financial markets in economic development/ Volume 1, Issue 1

Original Research Article | Open Access

The Linkage between Chittagong and Dhaka Stock Exchanges
Muhammad Shahidullah Tasfiq, xxxx Nasrin Jahan xxxx
Published Online: 9 December 2021 | Published In Print: 28 December 2021 | https://doi.org/10.54728/2112091639050770

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Abstract

This paper aims at determining the relationship between the two domestic stock markets of Bangladesh – the Chittagong Stock Market (CSE) and the Dhaka Stock Market (DSE). The daily stock price indices that represent the performance of the two stock markets are collected. In order to find out the interdependent relationship, the Engle-Granger Cointegration test, Granger Causality test, Impulse Response Function, and Variance Decomposition Analysis are employed in this paper. The main finding of this study is that both the stock markets are related in the long run. However, there is a one-way short-run effect from the DSE on the CSE market. The CSE market quickly responds to the shock in the DSE market. But, the DSE market is not responsive to the CSE market. The variance decomposition analysis shows that most of the shocks in the CSE market are explained by its own market. On the other hand, a small number of shocks in the DSE market are explained by the CSE market as well as its own market.