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Integration and Dynamic Linkages of the Indian Stock Market with Bric - An Empirical Study

Dr. Ranjan Dasgupta
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Dr. Ranjan Dasgupta: Associate Professor MBA Department, Institute of Engineering & Management (IEM), Kolkata, India

Asian Economic and Financial Review, 2014, vol. 4, issue 6, 715-731

Abstract: The interrelationships, interdependencies, integration, and dynamic linkages in between countries, regions including BRIC, country-region, and developing-developed stock markets had been thoroughly researched in the literature. This study aims at investigating above relationships both in short and long-run with special reference to India. It undertakes daily closing values of the BRIC indices from 1st January 2003 to 31st December 2012. This study has used Jarque-Bera test, and ADF and PP tests for judging the normality and stationarity of the data series. Based on the above results this study undertakes Johansen and Juselius’s and Engle and Granger’s cointegration tests, and pairwise Granger causality tests to investigate short and long-run interrelationships and integration of the BRIC stock markets. To make this study more reliable the Vector Autoregression in the form of Impulse response functions and Variance Decomposition analysis are also used. This study has found that they are non-normal and non-stationary at level, but integrated of order 1 [i.e., I(1)]. It has found only one cointegration, i.e., long-run relationships and also short-run bidirectional Granger relationships in between the Indian and Brazilian stock markets. Also, the Chinese stock market Granger causes the Brazilian stock market which in turn has a causal effect on the Russian stock market. Based on the above results, it is found that the Indian stock market has strong impact on Brazilian and Russian stock markets. The interdependencies (mainly on India and China) and dynamic linkages are also evident in the BRIC stock markets. Overall, this study has found that BRIC stock markets are the most favourable destination for global investors in the coming future and among the BRIC the Indian stock market has the dominance.

Keywords: BRIC stock markets; Integration; Dynamic linkages; ADF and PP tests; JJ and Engle-Granger cointegration tests; Pairwise Granger causality tests; Impulse response functions; Variance decomposition analysis (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:asi:aeafrj:2014:p:715-731