International Stock Market Integration and its Economic Determinants: A Study of Indian and World Equity Markets
22 Pages Posted: 10 Mar 2006
Date Written: March 2006
Abstract
Price co-movements and hence inter-market relations on the same day and lead-lag relations across days among India and other foreign countries all over the world, coupled with the possible forces behind the evolution of international stock market integration among India and other countries is studied. Daily closing prices of all the major equity indices from a sample of 23 countries, including India, for a period of 16 years have been used to assess the co-movement of prices internationally. Geweke (1982) Measures of Feedback along with a Polled Time Series analysis are used to explore the possibility of inter-market relations among India and some other foreign countries, and to examine the statistical significance of some important variables on the evolution of such inter-market relationship across the national border of India. Apart from exhibiting a significant contemporaneous or same day inter-market relationship among India and most of the other foreign countries, the contemporaneous feedback measures also reveals that there is an increasing tendency in the degree of integration among the markets over a period of time. As far as the unidirectional feedback measures are concerned, though most of the measures for the whole study period are found to be significant, only few annual measures exhibit statistical significance. Apart from this, unlike the contemporaneous measures, there is no fixed trend (either increasing or decreasing) in the movements of the annual unidirectional feedback measures. The polled regression results reveals that out of various macroeconomic factors, only some of them including the time trend are found to be significant in assessing the forces behind the contemporaneous inter-market relation. But none of the variable, except one, has shown statistical significance in explaining the co-movement of prices beyond one day.
Keywords: Integration, Price Co-movements, Geweke Measures, Economic Determinants
JEL Classification: G10, G15
Suggested Citation: Suggested Citation
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