Short and long run inter linkages of market returns of Indian stock market with developed stock markets

Abstract

The paper attempts to establish the linkages and relationship among the returns of these developed stock exchanges and examines the effect of the stock index of one country on the stock index of other country. The daily index returns of all the five stock exchanges are taken from 2007 to 2016. Long-term relationship has been tested by Johansen co-integration test to show long run association among developed stock exchange indices. ADF, unit root test and Granger causality have been applied to find out the cause and effect relationship among the nifty index and leading stock exchanges indices. There is a unidirectional causality relationship with Japanese, UK and Hong Kong stock markets, Indian stock market influence the Japanese and Hong Kong markets but Indian stock market is influenced by both the USA and UK stock markets. However long run association was not found among nifty and rest of the stock indices.