The Indian Financial Markets Integration during the Financial Crisis

This study empirically investigates the long-run equilibrium among Stock, Bond, Commodity, and Currency markets in India based on weekly data for the most recent period 2000–2012. To obtain more detailed results and particularly the assessment of effects of the global financial crisis of 2008, the period was divided to three sub-periods comprising 2000–2007, 2008, and 2009–2012. The research methodology used for the purpose includes testing the stationary nature of data with the Dickey Fuller test, optimal lag selection by using VAR Lag Order Selection Criterion, and co-integration test according to Johansen approach. This study suggests that while there has been no integration during the whole period of 2000–2012, there have been a slight, a strong and no integrations during 2000–2007, 2008, and 2009–2012 sub-periods respectively. The finding in this study is consistent with the phenomenon of “flight to quality” which implies that the economic turmoil leads to an increase in the relationship among economic variables.