The study investigates the interdependence of Indian Stock Market with other Asian equity markets like Pakistan, Sri Lanka, Malaysia, Korea, Japan, Singapore, Taiwan and China. The study uses monthly data over the period July 1997 to September 2012. By applying Augmented Dickey Fuller Unit Root Test, Johansen Cointegration Test, Granger Causality Test and Vector Error Correction Model (VECM) study find that all Asian stock indices are first difference stationary and long run equilibrium relationship exist among Asian markets. Study uncovers that causality run from stock markets of Sri Lanka, Korea, Singapore and China to India and from India to Pakistan. It also implies that the Indian stock market is affected by stock indices of Sri Lanka, Japan, Singapore, and China. Major implication study derives is that Indian government should monitor movements of Asian equity markets very closely, because crisis in any Asian country may affect the performance of Indian stock market. Further robust research can be done by reducing the frequency of data which will be helpful in validating the result of this study.
Asian stock markets, cointegration test, Granger causality test, vector error correction model
