A Study on Interdependency of Indian Stock Market with Other Emerging Markets

Abstract

Abstract: The Indian Stock market has witnessed a major transformation and structural change from the 10 to 15 years as a result of the ongoing economic and financial sec tor reforms initiated by the government of India since 1991.Among these measures, lifting of barriers and opening up the doors for foreign investors have promoted integration of Indian markets with other foreign markets, especially other emerging countries. For an international investor who is willing to make portfolio investments in other financial markets would be interested to know if he can achieve desired results by going for such diversification. Integration is the process by which segmented markets become open and unified so that participants enjoy unimpeded access to international trade and finance (Nalini Prava, 2005 ). Integration of financial markets will encourage flow of funds from markets having lesser returns to the one which offers higher returns. It can be assumed that financing and investing decisions by investors across the globe are greatly influenced by the perceived degree of market integration. This research paper is carried with the objective of analyzing whether Indian equity market is integrated with that of the rest of the world , especially among different Asian markets. Researcher had tested interdependency of Nifty Index movements with Shanghai Composite Index, Hangseng Index and Nikkei Index from 2006-2010 using simple correlation technique.

Keywords: Indian Stock Market. Interdependency of Markets, Emerging Markets, Nifty Movements

JEL Classification: G00, G02, G14