A study on cointegration between indian and american stock markets

Abstract

The process of globalization has had a deep impact of the financial markets worldwide. With the liberalization of the Indian capital markets and relaxation of restrictions on international flow of capital and trade, it is likely to expect the Indian stock market to be integrated with other world  markets. The recent policies of our government have given way to many foreign institutional investors to invest in our stock markets. These policy changes and initiatives would definitely have a profound impact on behavior of stock markets. The present study aims to test whether the Indian stock market is interdependent on the American Stock Markets. The New York Stock Exchange is the largest stock exchange in the world in terms of Market Capitalization. Many Indian companies have listed their companies’ shares in America. Hence the extent of cointegration between the major Indian stock exchanges with the leading stock markets of America like NYSE, S&P500 and the NASDAQ is tested using the Engle Grangler test of Cointegration. The data is collected for the time period Jan 1st 2000 to 31st Dec 2008. Such studies will be helpful to understand the extent of dependence of the Indian capital market with developed markets of the world and will serve as a useful benchmark to understand the status of Indian capital market in the current scenario.