Global Crisis and the Integration of India's Stock Market

Abstract

Due to growing skepticism over the globalisation process across countries, economists in the emerging market economies (EMEs) are anxious to know how the integration of financial markets was associated with the recent global crisis and whether there could be some key lessons for the broader policy approach to the development of financial market in the future. In this milieu, this study emphasises on a positive perspective on the subject, deriving from the key concerns of the EMEs and the insights from the literature. Financial integration and its association with the global crisis could be construed in terms of the pricing and the re-pricing of risks by the markets. The study derives some crucial insights from the multivariate cointegration analysis of stock price indices for the global markets of the US, the UK and Japan and select regional markets such as Hong Kong, Singapore and India, with a focus on the latter, a leading emerging market economy. These markets shared a single cointegration relationship and the Indian market played the key role. The long-run integration was evident from stock prices measured in US dollar rather than local currencies, attributable to the role of foreign investors and capital flows. The analysis for the full sample and the subsample (excluding the crisis phase) showed that the global crisis could not have been associated with the breakdown of the long-run relationship among the markets. The cointegrated stock markets could contribute to financial stability, since stock prices cannot diverge too far from the long-run equilibrium path.

Do Financial Assets Move in Tandem During High Impact Period of a Crisis: Evidence from Global Financial Crisis and COVID-19 Pandemic Periods

“…They also found that for all three periods of study, the relation was negative between stock and rupee-dollar returns while it was positive in the case of gold and crude. An interesting study was carried out by Dhal (2009) where he found that Indian markets were integrated both with regional and global markets when stock prices were measured in US dollars, however, this was not found to be the case in local currency. Focusing on the period before and after the GFC, he found that the long-run co-integration was positive with Indian Markets being dependent upon both US & UK.…”

Impact of Covid-19 on Long Run and Short Run Financial Integration Among Emerging Asian Stock Markets

“…The rising graph of cross border capital movements, foreign investments, international mergers and acquisition witness the same. Many researchers (Dhal, 2009;Mandal & Bhattacharjee, 2012;Ardliansyah, 2012;Bhunia & Ganguly, 2015;Verma & Rani, 2016) observed short run and long run interlinkages of Indian stock market with international stock markets.…”

Risk, uncertainty and stock returns predictability – a case of emerging equity markets

“…The answers are important from the policy perspective because of the growing importance of emerging equity markets (EEMs) in past decades. These markets have reported considerable growth, especially after the deregulation of the financial system (Dhal, 2009; Kumar, 2016; Singh and Ahmed, 2016; and Kumar and Dhankar, 2017). The recent studies on EEMs have given considerable focus to dynamics of stock returns under the risk and uncertainty (Chen and Epstein, 2002; Hansen et al , 2006; Anderson et al , 2009; Chua et al , 2010).…”