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Short-Term Integration Dynamics of Developing and Developed Stock Markets: Evidence from India, China, US and European Markets

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  • Rajni Kant Rajhans
  • M K Singh

Abstract

The dynamics of integration is studied in two time frames: short-term and long-term. The focus of this paper is to evaluate the short-term integration dynamics of stock exchanges of India (Bombay Stock Exchange – BSE) and China (Shanghai Stock Exchange – SSE) with US (S&P500) and Europe (FTSE100). Granger Causality Test was used to identify the direction of causality, and impulse response was used to identify the effect of shocks from one market to the other markets. The outputs suggest that BSE Granger-causes FTSE100 and S&P500. But SSE does not Granger-cause S&P500 and FTSE100. This result contradicts the findings of the prior research (Janak Raj and Sarat, 2008), which suggest that Indian stock markets do not Granger-cause US, European and other developed markets. The impulse response of S& P500 to BSE suggests that any shocks from BSE to S&P500 survive for a period of two days. This study would help portfolio managers and investors to view diversification from a new perspective and take advantage of it.

Suggested Citation

  • Rajni Kant Rajhans & M K Singh, 2014. "Short-Term Integration Dynamics of Developing and Developed Stock Markets: Evidence from India, China, US and European Markets," The IUP Journal of Applied Finance, IUP Publications, vol. 20(3), pages 53-61, July.
    • Handle: RePEc:icf:icfjaf:v:20:y:2014:i:3:p:53-61
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