Integration of Indian Stock Market with World Stock Markets

Financial integration is one of the buzz words in financial world. The co movement of share prices across the stock markets in the world is a frequently experienced phenomenon. Especially during the times of crisis it is observed that the stock markets crash together. The oil crisis of 1973, the October 1987 crash, the South East Asian crisis of 1997 and the present financial crisis evidence the same. It is important to study interlinkages among the world's stock markets as it has crucial implications for investment decisions, macro economic policies of a country and can be used to judge the efficiency of the stock markets. This paper examines the integration of the Indian stock market with the stock market of Japan, UK, US and China over the period 1st January 1998 to 31st October 2008 using Engle - Granger cointegration test and Granger's causality Test. The results show that the Indian stock market is not integrated with any of these markets except US. However, unidirectional causality was found in most cases. The findings have important implications for investment and speculative decisions