Saha, Malayendu and Bhunia, Amalendu (2012): How far India has gone down the road towards financial integration with US since subprime crisis? An Econometric Analysis.
Download (228kB) | Preview
The present paper aims to study the causal relationship between the US and Indian equity markets using Johansen’s cointegration and variance decomposition analyses. Since the opening up of the economy and subsequent economic and political reforms, India has made tremendous strides in the global equity markets and also been impinged on by the recent happenings. Eviews 7 package program has been used for arranging the data and conducting econometric analyses. The ADF test shows that the time series data used for the study are stationary and integrated of order one. The Johansen’s co-integration test reveals that there exists long run equilibrium relation between the selected variables. The Granger causality test in the vector error correction model suggests the evidence of feedback causality running between the six stock exchanges. However, there is no dependence of any of the individual exchange over the other.
|Item Type:||MPRA Paper|
|Original Title:||How far India has gone down the road towards financial integration with US since subprime crisis? An Econometric Analysis|
|Keywords:||Stock Market Integration; India; United States; Johansen’s Cointegration Analysis; Vector Error Correction Model; Variance Decomposition Analysis|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
|Depositing User:||MALAYENDU SAHA|
|Date Deposited:||11. May 2012 04:46|
|Last Modified:||14. Feb 2013 01:44|
References Abas, M. (2009). Analysis of Stock Market Linkages: Chinese, Indian and Major Markets.Unpublished Dissertation.
Aktan, B., Mandaci, P. V., Kopurla. B. S. and Ersener. B. (2009). Behaviour of Emerging Stock Markets in the Global Financial Meltdown: Evidence from BRIC-A. African Journal of Business Management. Vol. 3 (9).
Arshanapalli, B. and M.S. Kulkarni. (2001). Interrelationship between Indian and US Stock Markets. Journal of Management Research. 1.
Auzairy, N. A. and Ahmed. R. (2009). The Impact of Subsequent Stock Market Liberalization on the Integration of Stock Market in ASEAN-4+South Korea. World Academy of Science Engineering and Technology. 58.
Awokuse, T. O., Chopra, A., and Bessler, D.A. (2009). Structural change and international stock market interdependence: Evidence from Asian emerging markets. Economic Modeling. 26.
Bose, S. (2005). Securities Market Regulations: Lessons from US and Indian Experience. The ICRA Bulletin. Money & Finance. Vol. 2. No. 20-21.
Chattopadhyay, S. and Behera. S. K. (2008). Financial Integration for Indian Stock Market. Working Paper. 12th Annual Conference on Money and Finance in the Indian Economy.
Chen, H., Lobo, J. B. and Wong, W-K. (2006). Links between the Indian, US and Chinese Stock Markets. Working Paper No. 0602.
Chittedi, K.R. (2009). Global Stock Markets Development and Integration: with Special Reference to BRIC Countries. Unpublished.
Dickey, D. and Fuller, W. (1979). Distribution of the Estimates for Autoregressive Time Series with a Unit Root. Journal of American Statistical Association. 74.
Dickey, D. and Fuller, W. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica. 49.
Dolado, J.J., Lütkepohl, H. (1996). Making Wald tests work for cointegrated VAR systems. Econometric Review. 15.
Engle, R. F. (1982). Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation. Econometrica. Vol. 50.
Engle, R. F. and Granger, C. W. J. (1987). Co-Integration, Error Correction: Representation, Estimation and Testing. Econometrica. Vol. 55(2).
Fidrmuc, J. and I. Korhonen. (2010). The Impact of the Global Financial Crisis on Business Cycles in the Emerging Economies in Asia. Journal of Asian Economics. Vol. 21.
Granger, C. W. J. (1986). Developments in the Study of Cointegrated Economic Variables. Oxford Bulletin of Economics and Statistics. Vol. 48.
Granger, C. W. J. (1988). Some Recent Developments in a Concept of Causality. Journal of Econometrics. Vol. 39 (1/2).
Ismail, M. T. and Rahman, R. A. (2009). Modelling the Relationships between US and Selected Asian Stock Markets, World Applied Sciences Journal. 7 (11).
Iqbal, A., Khalid. N. and Rafiq. S. (2011). Dynamic Interrelationship among the Stock Markets of India, Pakistan and United States. International Journal of Human and Social Sciences. 6:1.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control. Vol. 12(2-3).
S. Johansen and K. Juselius (1990). Maximum likelihood estimation and inference on cointegration–with applications to the demand for money. Oxford Bulletin of Economics and Statistics. Vol. 52(2).
Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegrating Vectors in Gaussian Vector Autoregressive Models. Econometrica. Vol. 59.
Kearney, C. & Lucey, B.M. (2004). International Equity Market Integration: Theory, Evidence and Implications. International Review of Financial Analysis. Vol.13. no. 5.
Kim S.J, Moshirian F, Wu E (2005). Dynamic Stock Market Integration Driven by the European Monetary Union: An Empirical Analysis. J. Bank. Financ. 29.
Korajczyk, A. R. (1995). Stock Market Integration for Developed and Emerging Markets. The World Bank Policy Research Department. Policy Research World Paper No. 1482
Kumar, N. (2002a). Towards an Asian Economic Community- Vision of Closer Economic Cooperation in Asia: An Overview. Research and Information System for Non-Aligned and other Developing countries (RIS). Discussion Paper 32. New Delhi.
Kumar, N. (2002b). Towards an Asian Economic Community: The Relevance of India. Research and Information System for Non-Aligned and other Developing countries (RIS). Discussion Paper 34. New Delhi.
Lamba, A.S. (2005). An Analysis of the Short- and Long-Run Relationships between South Asian and Developed Equity Markets. International Journal of Business. Vol. 10(4).
Longstaff, F.A.(2010). The subprime credit crisis and contagion in Financial markets. Journal of Financial Economics. 97. 436-450.
Longstaff, F. A., J. Pan, L. H. Pedersen, and K. J. Singleton. (2011). How sovereign is sovereign credit risk? American Economic Journal: Macroeconomics. 3.
MacKinnon, James G. (1996). Numerical Distribution Functions for United Root and Cointegration Tests. Journal of Applied Econometrics. Vol. 11, No. 6.
MacKinnon, James G., Alfred A. Haug, and Leo Michelis. (1999). Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration. Journal of Applied Econometrics, Vol. 14, No. 5.
Majid, M. S. A., Meera, A. K. M., Omar, M. A. and Aziz, H. A. (2009). Dynamic Linkages Among ASEAN-5 Emerging Stock Markets. International Journal of Emerging Markets, 4(2).
Mallik, G. (2006). Has the Stock Market Integration between the Asian and OECD Countries Improved after the Asian Crisis? Frontiers in Finance and Economics. Vol. 3(2).
Mishra, D. (2006). Financing India’s Rapid Growth and its Implications for the Global Economy. Mimeo, World Bank.
Nath, G. C and Verma, S. (2003). Study of Common Stochastic Trend and Co-integration in the Emerging Markets: A Case Study of India, Singapore and Taiwan. Research paper. NSE India.
Phillips, P. C. B. and Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrika. Vol. 75. No. 2.
Raj, J. and Dhal, S. (2008). Integration of India’s Stock Market with Global and Major Regional Markets. BIS Papers. No. 42.
Subbarao, D, (2008). The global financial turmoil and challenges for the Indian economy, BIS Review, Speech by Dr Duvvuri Subbarao, Governor of the Reserve Bank of India, at the Bankers' Club, Kolkata, 10 December 2008.
Toda, H.Y.and Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics 66.
Wong, W-K., Agarwal, A. and Du, J. (2005). Financial Integration for Indian Stock Market: A Fractional Cointegration Approach. Working Paper No. 0501. Department of Economics. National University of Singapore.
Yilmaz, K. (2010). Return and Volatility Spillovers among the East Asian Equity Markets, Journal of Asian Economics, Vol. 21(3).