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Emerging Stock Market Integration in the Post Financial Crises Era: An Empirical Analysis of the Short-term and Long-term Linkages

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  • Rajneesh Prakash Verma
  • Poonam Rani

Abstract

In the backdrop of the recent global financial crises in 2008, this article attempts to assess the linkage among Brazil, Russia, India, China and South Korea. For this purpose, we adopted a variety of ways. First, long-run and short-run linkages among emerging market indices were investigated by using Johansen’s co-integration method and Sim’s vector autoregression model. Second, to analyze the issue in detail, we examined the causal relationship and impact of shocks by using Toda and Yamamoto (1995) version of Ganger noncausality test and forecasted error variance decomposition along with the impulse response function. We have investigated short-run causal relationship among the emerging market indices and showed how much of the forecast error variance of NIFTY market returns can be explained by exogenous shocks to the other emerging markets. The results of noncausality test among emerging stock markets indicated that Brazilian market has a unidirectional causality with Indian stock market, and Indian stock market has a unidirectional causality with South Korean market. Finally, the results of variance decomposition and impulse response function suggest that return in Indian stock market (NIFTY) is largely affected by its own shocks, whereas shocks in return of other emerging stock markets do not dominate in case of return in Indian stock market (NIFTY).

Suggested Citation

  • Rajneesh Prakash Verma & Poonam Rani, 2016. "Emerging Stock Market Integration in the Post Financial Crises Era: An Empirical Analysis of the Short-term and Long-term Linkages," Emerging Economy Studies, International Management Institute, vol. 2(1), pages 91-109, May.
    • Handle: RePEc:sae:emecst:v:2:y:2016:i:1:p:91-109
    DOI: 10.1177/2394901516628400
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    2. Dirceu Pereira, 2018. "Financial Contagion in the BRICS Stock Markets: An empirical analysis of the Lehman Brothers Collapse and European Sovereign Debt Crisis," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 2(1), pages 1-44.

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