Is the Indian stock market cointegrated with other Asian markets?

Shegorika Rajwani and Jaydeep Mukherjee ()

Management Research Review, 2013, vol. 36, issue 9, 899-918

Abstract: Purpose - The purpose of this paper is to investigate the linkages between Indian stock markets with other Asian stock markets namely, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Taiwan and China. Such a study is particularly important because if the level of integration among the markets is high, then investing in different markets will not generate long term gains from portfolio diversification or reduction in risk. Design/methodology/approach - The paper applies unit root test in the presence of endogenous structural breaks that uses a Lagrange Multiplier (LM) test statistics and the Gregory and Hansen cointegration technique that allows for endogenous determined structural break in the relationship have been applied. Findings - The results suggest that the Indian stock markets are not integrated with any of the Asian markets either individually or collectively, and conclude that Indian markets are not sensitive to the dynamics in these markets in the long run. Originality/value - Since the level of integration has been studied keeping in mind the different economical phases like recession and boom, the study has incorporated the possibility of existence of structural breaks in the individual stock return series as well as in their relationship. The lack of evidence on interlinkage of Indian stock markets with other Asian markets suggests that the trend of Indian markets is not in sync with other markets, possibly due to difference in macroeconomic structure. Since the level of integration has been studied keeping in mind the different economical phases like recession and boom, the study has incorporated the possibility of existence of structural breaks in the individual stock return series as well as in their relationship. The lack of evidence on interlinkage of Indian stock markets with other Asian markets suggest that the trend of Indian markets is not in sync with other markets, possibly due to difference in macroeconomic structure.

Keywords: Asian stock market; Unit root; Cointegration; Structural breaks; Stock markets; Financial markets; India (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eme:mrrpps:v:36:y:2013:i:9:p:899-918

DOI: 10.1108/MRR-06-2012-0141

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