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Integration Of Global Capital Markets: An Empirical Exploration

Author

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  • MALAY BHATTACHARYYA

    (Indian Institute of Management, Lucknow, India 226013, India)

  • ASHOK BANERJEE

    (Indian Institute of Management, Lucknow, India 226013, India)

Abstract

It is generally argued that with lifting of barriers to the flow of capital across countries by respective governments, the capital markets have come closer and are now more integrated. This paper examines the existence (or absence) of integration among stock indices of 11 developed and emerging stock markets from three continents: Asia, Europe and America. Using synchronous weekly closing index values from November, 1990 through December, 2001, the study found that all the 11 stock markets are cointegrated. The cointegration analysis was carried out using an error correction vector autoregression (VECM) model. The study goes further to test whether there are any causal relationships among the indices and has used a hitherto empirically untested methodology to explore the causal relationships. Results show that capital market indices from European countries and the USA are not Granger caused by any index. On the other hand, causality effects are much pronounced in Asian capital markets. The capital market in Hong Kong "leads" the other markets in Asia. This learning would help fund managers in managing their exposure in Asian capital markets. The regulators may use the causality results to identify the markets driving movements in a country's capital market and take corrective measures.

Suggested Citation

  • Malay Bhattacharyya & Ashok Banerjee, 2004. "Integration Of Global Capital Markets: An Empirical Exploration," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 7(04), pages 385-405.
    • Handle: RePEc:wsi:ijtafx:v:07:y:2004:i:04:n:s0219024904002529
    DOI: 10.1142/S0219024904002529
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    Cited by:

    1. Hee Seong Kim & Sang-Bum Park, 2006. "The Dynamic Relationship between Main Investors' Net Long Position and the Trading Volume of KTB Futures Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 5(3), pages 217-233, December.
    2. Aman Srivastava & Shikha Bhatia & Prashant Gupta, 2015. "Financial Crisis and Stock Market Integration: An Analysis of Select Economies," Global Business Review, International Management Institute, vol. 16(6), pages 1127-1142, December.
    3. Yong Kheng Goh & Haslifah M Hasim & Chris G Antonopoulos, 2018. "Inference of financial networks using the normalised mutual information rate," PLOS ONE, Public Library of Science, vol. 13(2), pages 1-21, February.

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