Decoupling Theory: A Study of Global Markets in the Present Era of Volatility

Amarjeet S. Khalsa

Paradigm, 2008, vol. 12, issue 2, 93-105

Abstract: It is commonly remarked that world markets catch cold when the US market sneezes. In this context what happened in the year 2000 has been well recorded in the chronicles of stock exchanges. Steep fall in NASDAQ resulted in impacting Bombay Stock Exchange Sensex as well as most South-East Asian Markets. The phenomenon of global stock market contagion is now familiar and has become more pronounced in recent years apparently because of the rapid global economic integration. This paper reports a study to find out if there is a correlation between Indian and Global stock markets and to further find out which market affects the Indian market maximum. In the context of the study, the paper examines the emerging concept of decoupling theory, which believes that because of strong GDP growth of countries as China and India, the stock markets of these countries will remain bullish even when there is recession in the US. The study presents an overall picture that although there is no perfect correlation, stock indices of Hong Kong, Singapore, Taiwan, London, NASDAQ and Brazil had more impact on Indian index.

Keywords: Decoupling; Volatility; Stock Exchange; Correlation; Indicators; Capital Market; Contagion effect (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:sae:padigm:v:12:y:2008:i:2:p:93-105

DOI: 10.1177/0971890720080210

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