An empirical study of testing financial intgration between Indian and New York Stock Market

THE present paper made an attempt to investigate financial integration between NSE and NYSE stock market taking daily closing index of NYSE and NSE. A saying goes like, when America sneezes, world catches cold. Therefore, we tried to testify that at what extent this statement is applicable in respect of Indian market and further study inter linkages and inter relationships between them.

We have taken one stock exchange from both the countries. New York Stock Exchange (NYSE) has been taken for America's representative exchange and National Stock Exchange (NSE) has been taken as the representative exchange of India. The monthly closing stock index price has been taken starting from January 2000 to December 2016. The data mainly collected from NYSE website and NSE website. The Descriptive Statistic is used to summarize the general trend and pattern. For checking data series stationarity, the line graph was prepared and we used the log value of indices and further testified the data with Augmented Dickey-Fuller (ADF) test under unit root hypothesis. After ADF test, Granger Causality was applied and for causation and for long-term relationship we conducted Johansen Co-integration test. The data analysis was done with EViews 9.

Descriptive statistics showed that stock market of India provide lower returns in compare of New York stock market. Testing results of Granger Causality explained that return at NYSE does Granger Cause return at Indian exchange that infers the returns on NSE is influenced more with NYSE index co-movements but not vice versa because NSE does not Granger Cause return at NYSE. Johansen Co-integration speaks about co-integration between them which means that movements in NYSE index influences NSE market and both having co-movements.

We took the sample data for the period January 2000 to December 2016. A larger sample data could also be taken in the future and although only one stock market index from both the countries was taken but one more major stock exchange could also be taken for the same study like Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) and New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ).

The study is providing the basis for making government policy keeping in mind this financial integration between NSE and NYSE. Not only this, various market participants may use this study conclusion in order to formulate different investment strategy especially keeping in mind the fluctuations happening in Indian and American market.

The study is unique and unpublished and having originality.