Integration of Global Stock Markets : a Review of Literature

Abstract

The perception is that under the existing global economic structure and developments the global stock markets of most countries are becoming gradually more integrated. Indian markets are no more exception to these developments and in India the issue is also gaining attention in the post liberalization era. With this background, the research aims to examine the common perception of global integration from an Indian stock market perspective. The investigation was carried out, in the first instance, in a straightforward way. With a view to know the interdependence of stock markets located all over the world and to realize the potential risk and rewards of global diversification, the present study presents a brief review of past literature on stock market integration in the international scenario. All the studies are categorized into three parts, namely, studies examining only the presence of interdependence, studies investigating the possible changes in such relationship over time and studies explaining the possible causes of such interdependence. The foregoing review reveals that the stock markets of different countries are interdependent both within and across the country. The present study confirms that though there are a number of studies explaining stock market interdependence, the literature stating why stock markets are interdependent is quite sparse. Again, so much emphasis has been given to the event of October 1987 crises in the existing studies possibly to check the extent of such interdependence over time. This study covers the previous works which have applied different methodologies to test the stock market integration.