A study on stationarity of global stock market indices

Abstract

Studying the behavior of stock prices has always been a subject of interest to researchers. Stock markets are always taken as a prominent indicator of the performance of the economy of a country and the industry. Financial markets form the backbone of the country’s economy, and stock markets being an integral part of the financial markets play a crucial role in determining the economic status of a nation. With the globalization of the capital markets, stock markets worldwide are integrated and the performance of one has a bearing on the other due to movement of capital from one market to the other. During the current scenario, when stock markets of the world are facing major volatility the researcher aims to study the behavior of major stock indices of the world. The major idea of the research is to find out how the stock market indices have reacted to the changes that have happened in the markets. The stock markets are said to be efficient when prices fully reflect all available information. Hence, the current paper tries to study the stock indices of the various  markets by studying the stationarity of the stock index returns. In time series econometrics, a time series that has a unit root is known as a random walk. A random walk is an example of a non-stationary time series. The Dicky Fully test of stationarity is applied to the stock index returns of select global indices and tested for stationarity. The results of the paper will throw light on the general behavior of the stock indices and help us gauge the efficiency of the global stock markets.