Stock Market Inter-Linkages: Evidence from India and Other Developed Markets

The relationships between international capital markets have become vital in recent times. Capital markets internationalisation provides prospects to the investors to invest their money in the country of their choice and free mobility of money. This paper is an attempt to study the inter-linkages between stock markets of India, United States, Switzerland, Singapore, Japan, Belgium, Hong Kong and Germany with which it has trading relationship. Descriptive statistics, unit-root test, Johansen co-integration test, Granger's causality model and Vector Error Correction Model are applied to find out the linkages between the markets under study. The results revealed that the Indian stock market in the long run is not affected by the development of other stock markets, but in short run it got affected. There is also evidence that India has started exhibiting divergence from other developed economies because of dissimilar levels of development and growth. At the same time, if the equity markets are integrated, hedging and international diversification strategies will be less beneficial.