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Indian Capital Market Integration with Select Developed and Developing Countries

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  • Seshaiah, S.V.

Abstract

This paper empirically investigates into the long-run equilibrium relationship and short-run dynamic linkage between the Indian stock market indices and the stock markets of seven developed countries namely, Switzerland, France, Germany, Japan, UK, USA and South Korea and seven developing countries namely Indonesia, Malaysia, Taiwan, Argentina, Israel, Brazil and Mexico. Using the cointegration approach, Granger causality, variance decomposition analysis and VECM on daily data on stock market indices for the period 1st July 1997 to 8th July 2005, it is shown that the Asian Stock markets have a long term relationship with Indian Stock Market where as the Indian stock markets exhibit certain short term unidirectional as well as bidirectional causal relationship with the different capital markets chosen for analysis. Based on variance decomposition results, it has been shown that the Asian markets are more endogenous in nature barring Japan making it a more lucrative destination for the international investors to invest and diversify the portfolio risks whereas the UK, Germany and Switzerland markets are not endogenous indicating no diversification possibilities in these markets.

Suggested Citation

  • Seshaiah, S.V., 2006. "Indian Capital Market Integration with Select Developed and Developing Countries," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(2).
    • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:2_16
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    References listed on IDEAS

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    1. Paresh Narayan & Russell Smyth & Mohan Nandha, 2004. "Interdependence and dynamic linkages between the emerging stock markets of South Asia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 44(3), pages 419-439, November.
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