Integration of Indian Stock Market with Developed Markets : A Short-Term Dynamic Analysis

A Financial markets around the world have seen a high degree of volatility in last 5 years and hence, after recent financial crisis in USA, followed by debt crisis in Europe have forced academicians and portfolio managers to re-evaluate the degree of integration between different financial markets of interest. This paper examines the short-term dynamic integration of Indian stock market (BSE) with developed stock markets (S&P500 and FTSE100). Output suggests that return on BSE Granger Causes return on FTSE100 as well as return on BSE Granger Causes return on S&P500. Further, return on FTSE100 doesn't Ganger Cause return on BSE while return on S&P500 Granger Causes return on BSE. This indicates that there is a unidirectional relationship between BSE & FTSE100 while a bidirectional relationship between BSE & S&P500. This result contradicts with other prior research findings (Janak, Raj, Sarat Dhal, 2008), which suggested that Indian stock markets doesn't Granger Cause US, European and other developed markets