Global Stock Markets Development and Integration: with Special Reference to BRIC Countries

Chittedi, Krishna Reddy (2009): Global Stock Markets Development and Integration: with Special Reference to BRIC Countries.

Abstract

In a country like India where the stock market is undergoing significant transformation with liberalization measures, and the analysis of the nature of integration with other developed and emerging markets would not only give an idea of the possible gains to be reaped out of portfolio diversification from Indian market, but may also provide some indication of the vulnerability of the country’s stock market in case of a regional financial crisis and consequent reversal of capital flows from the region. In the context the study examined the integration of the stock market among the BRIC (Brazil, Russia, India and China) economies in general and their integration with the developed countries stock markets such as US, UK and Japan, which can be analyzed by using the Granger causality, Johansen co integration and Error correction Mechanism methodology, based on daily data for the period January1998- Aug 2009. The results of co integration shows co integration relationship found between BRIC countries and Developed countries namely USA, UK and Japan. The results of Error correction model reveal that Sensex, Nikki225, moscowtimes, FTSE 100, and Bovespa are significant. It implies that these markets share the forces of short run adjustment to long run equilibrium.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock Market integration, Johansen Julius co integration test, ECM, Engel Granger Casualty test, emerging countries, developed countries
• Subjects: F - International Economics > F3 - International Finance > F30 - General; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

References

Agmon, T (1972), “The relationship among equity markets: a study of share price co movement in the United States, United Kingdom, Germany and Japan”, Journal of Finance, vol 27, pp 839–55.

Alfaro, L, S Kalemli-Ozcan and V Volosovych (2005), “Capital flows in a globalised world: the role of policies and institutions”, NBER working papers, no 11696

Amanulla. S and B Kamaiah (1995): Market Integration as an Alternative test of Market Efficiency: A case of Indian stock Market. Artha Vijana, September N 3 PP 215-230

Ayuso, J and R.Blanco (1999) Has financial market integration has increased during the nineties? Ban code Espana service de estudios, document de trabajon 9923.

Chittedi Krishna Reddy (2007) “Stock Market Integration in India” M.Phil dissertation, University of Hyderabad, Hyderabad, Andhra Pradesh.

Chowdhry, A R (1994), “Stock market interdependencies: evidence from the Asian NIEs”, Journal of Macroeconomics, vol 16, no 4.

Chowdhry, T, Lin Lu and Ke Peng (2007), “Common stochastic trends among Far Eastern stock prices: effects of Asian financial crisis”, International Review of Financial Analysis, vol 16

Demirguc-kunt, A and E Detragiache (1999), financial liberalization and fiancail fragility”, in B Pleskovic and J E Stiglitz, eds, Annual World bank Conference on Development Economics 1998, world bank, Washington DC.

Engle, R F and C W J Granger (1987), “Co integration and error correction: representation, estimation, and testing”, Econometrica, vol 55, no 2, pp 251–76.

Johansen, S (1988): “Statistical analysis of co integrating vectors”, Journal of Economic Dynamics and Control, vol 12, pp 231–54.

Johansen, S and K Juselius (1990): “Maximum likelihood estimation and inferences on co integration – with applications to the demand for money”, Oxford Bulletin of Economics and Statistics, vol 52, no 2, pp 169–210.

Kasa, Kenneth, (1992), "Common stochastic trends in international stock markets", Journal of Monetary Economics, 29, pp. 95-124.

Korajczyk Robert A., “A Measure of stock market Integration for developed and emerging countries”, The World Bank Policy Research Department working paper No.1482

Lane, P R and G M Milesi-Ferretti (2006), “The external wealth of nations mark II: revised and extended estimates of foreign assets and liabilities, 1970-2004”, IMF working papers, no 06/69, March.

Levy, H and M Samat (1970) “International diversification of investment portfolios”, American Economic Review, vol 60, pp 668–75.

Masih, Rumi and A. Mansur M. Masih (2001), "Long and short term dynamic causal transmission amongst international stock markets", Journal of International Money and Finance", 20, pp. 563-587

Prasad, Eswar S, Kenneth Rogoff, Shang-Jin Wei and M Ayhan Kose (2003), “Effects of financial globalization on developing countries: some empirical evidence”, IMF Occasional Papers, no 220.

Scheicher, Martin (2001). The Comovements of Stock Markets in Hungary, Poland and the Czech Republic. International Journal of Finance and Economics, 6(1): 27-39.

Solnik, B, C Boucrelle and Y Le Fur (1996), “International market correlation and volatility”, Financial Analysts Journal, vol 52, no 5, pp 17–34

Taylor, M P and I Tonks (1989), “The internationalization of stock markets and abolition of UK exchange control”, Review of Economics and Statistics, vol 71, pp 332–6.

Yu, I, L Fung and C Tam (2007), “Assessing financial market integration in Asia – equity markets”, Hong Kong Monetary Authority Working Papers, no 04/2007.