A STUDY OF CD AND CP MARKET IN INDIA: COINTEGRATION ANALYSIS OF THEIR VOLUMES

Markets for CD that were introduced in 1989 and CP that were introduced in 1990 exhibit contrasting behavior. Activity in the CP market booms amidst ample liquidity condition whereas that in CD market shots up in tight market conditions. In order to examine the relationship between the sizes of CD and CP markets, the Augmented Dickey Fuller (ADF) test was conducted to verify stationarity of the series of the outstanding amounts. The Johanson-Juselius’s Cointegration Test and VAR model of order 2 are used to identify the nature and degree of long-run relationship between them during the period of ten years from April 1993 to March 2004. The test results demonstrate that outstanding amounts of CD and CP are not cointegrated.