Abstract
In this study we investigate whether stock prices and economic activity in India are co-integrated by using monthly data from 1960 to 2013 and applying high-powered co-integration tests which have an inherent advantage of permitting structural changes in the relationships being tested and in asymmetric co-integration, along with frequently applied co-integration tests of Engle and Granger (1987) and Johansen (1988). The results of the study provide empirical evidence for reasonably saying that stock prices and economic activity in India are co-integrated and validate the prediction in financial economics literature.
Highlights
In the last few years, India has been a bright spot in the pecking order of world economies and has been one of the fastest-growing economies in the world
In this study we investigate whether stock prices and economic activity in India are co-integrated
In this study we investigate whether stock prices and economic activity are co-integrated for India
Summary
In the last few years, India has been a bright spot in the pecking order of world economies and has been one of the fastest-growing economies in the world. In this study we investigate whether stock prices and economic activity in India are co-integrated. These tests are outmanoeuvred by high-powered co-integration tests which have an inherent advantage of permitting structural changes in the relationships being tested and in asymmetric co-integration This is one of those few studies in literature which tries to address whether stock prices and economic activity in India are cointegrated by using monthly data from 1960 to 2013 and applying high-powered co-integration tests. The results of the study provide empirical evidence to the fact that stock prices and economic activity in India are co-integrated and validate the prediction in financial economics literature from Indian context.
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