Are stock markets interdependent? A study on selected stock markets Prof. Patel Nikunj R, Prof. Mohanty Sushil, Prof. Pathak Neeta Associate Professor, S. V. Institute of Management, S. V. Campus, Kadi, Mehsana, Gujarat. India. Online published on 3 November, 2012. Abstract India has adopted LPG Policy in 1991 for rest of the world and leads to increase an integration of the Indian capital market with international financial. Here, we have examined the co-movement of the Indian stock market(BSE) with developed markets like US, Japan, UK, Germany, France, Australia, and developing markets like Brazil, China, Malaysia, Hong Kong, Korea, Pakistan using daily data for the period January 2001 to May 2011. Tools like descriptive statistics, correlation, rolling correlation and Granger-causality tests have been used in the paper to find out the same. We found that the US market is not playing a unique role in integration of Asian markets. It is observed from the analysis that majority of the Asian Stock market indices integrate with each other, like BSE, SHANGHAI, JAKARTA and KLSE is highly correlated with Strait Times whereas KSE is highly correlated with BSE. All these stock exchanges are the developing economies of the world. Whereas the developed countries stock indices showed the co-integration majorly with the developed countries indices like, Dow Jones is highly correlated with DAX, CAC40 with DAXand NIKKEI with AOA. This shows that an investor can be able to earn a good return by diversifying investment in both kinds of economies (developed and developing). This study yields an interesting result that, excluding the Indian market from the set of Asian markets leads to no or fewer co-integrating relations; this indicates a unique role of India in the degree of linkages of these stock markets during the recent period of more open capital markets, where FII investments play a key role in synthesizing markets across a region. The degree of integration found is not significant that implies the nature of integration with emerging Asian markets does not yet warranty any immediate concern for India regarding possible contagion effect. The observations also showed that there is still much scope for reaping benefits of portfolio diversification. Top Keywords Stock Market Interdependence, Rolling Correlation, Granger Causality. Top |