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Financial markets integration in India

Author

Listed:
  • Surbhi Jain

    (Assistant Director, Office of the Economic Advisor, DIPP, Ministry of Commerce and Industry, Government of India)

  • N.R. Bhanumurthy

    (Faculty Member, Institute of Economic Growth, Delhi, India)

Abstract

In the present study, we examine the issue of integration of financial markets in India. Given the growing movement of capital flows, particularly short-term capital, into the domestic financial markets, it is necessary to examine this issue so as to reap the positive benefits with having stable markets. For this purpose, the present study examines this issue in the post-1991 period by using monthly data on call money rates, 91 day Treasury Bill rates, Indian Rupee/US dollar exchange rates, and the London Inter Bank Offered Rate (LIBOR). By using a multiple co-integration approach, the study found that there is a strong integration of the domestic call money market with the LIBOR. Though, the study found that there is a long-term co-movement between domestic foreign exchange market and LIBOR, it is not robust. This may be due to frequent intervention by the Central Bank in the foreign exchange market. As the Government securities market in India is still in the developing stage, it was not found to be integrated with the international market. Policy measures (or reforms) are necessary to increase integration of financial markets. This would help in reducing the arbitrage advantage in some specific segment of the financial markets.

Suggested Citation

  • Surbhi Jain & N.R. Bhanumurthy, 2005. "Financial markets integration in India," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 12(2), pages 15-32, December.
    • Handle: RePEc:unt:jnapdj:v:12:y:2005:i:2:p:15-32
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    File URL: http://www.unescap.org/sites/default/files/apdj12-2-2-jain.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Khan, Muhammad Arshad & Sajid, Muhammad Zubair, 2007. "Integration of Financial Markets in SAARC Countries: Evidence Based on Uncovered Interest rate Parity Hypothesis," MPRA Paper 6751, University Library of Munich, Germany.
    2. Motelle, Sephooko & Biekpe, Nicholas, 2015. "Financial integration and stability in the Southern African development community," Journal of Economics and Business, Elsevier, vol. 79(C), pages 100-117.
    3. Zohreh Shirani Fakhr & Seyed Komail Tayebi, 2009. "Determinants of Financial Integration in the East Asia-Pacific Region," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 14(1), pages 155-173, spring.
    4. Daniel Agyapong, 2014. "Stock Market Integration in West African Monetary Zone: A Linear and Nonlinear Cointegration Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(5), pages 563-587, May.
    5. Daniel Agyapong, 2014. "Macroeconomic Spillover and Single Currency Adoption: An Inter-regional Analysis," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 64(3), pages 73-93, July-Sept.
    6. Gargi Sanati, 2010. "Integration of India’s Financial Markets on the Domestic and International Fronts: An Emperical Analysis of the Post-Liberalisation Period. June 2010," Working Papers id:3097, eSocialSciences.

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    More about this item

    Keywords

    financial markets; cointegration; India;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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