Dynamic Linkages Between U.S and Indian Equity Markets: An Empirical Study

Abstract

In this study, we investigate the dynamic linkages between US and Indian equity markets by examining the daily Total Return Index values of NIFTY 50 and NASDAQ Composite over a decade ending October 2024. While the indices are not found to be cointegrated, suggesting potential long-term diversification benefits, they exhibit significant short-term correlations. Through various statistical analyses including regression, correlation, and variance tests, we find strong positive associations between the markets, with NASDAQ Composite movements explaining approximately 89% of variations in NIFTY 50 Total Return Index (TRI). The study reveals distinct volatility patterns, with the Indian market showing higher price fluctuations but stronger absolute growth compared to its US counterpart. Despite the strong correlation, both markets maintain unique characteristics influenced by their respective economic fundamentals. The findings demonstrate the evolving nature of market integration between developed and emerging economies, offering valuable insights for international portfolio diversification strategies and risk management in an increasingly interconnected global financial system. Keywords: Market Integration, Volatility Spillover, Portfolio Diversification, Stock Market Returns, Emerging Markets, Cross-market Correlation