Impact of globalisation on efficiency of Indian Stock Market

The objective of this paper is to examine the impact of globalization on stock market development in India using commonly recognized indicators. Globalization stared in India in 1991. After that, India introduced significant reforms to foster development of capital markets. These reforms were brought in with the objective of developing the Indian capital markets in terms of transparency, liquidity, informational efficiency and preventing unfair trade practices. Globalization led to increased FDI flows in India. Increased FDI not only led to capital flows but also brought transparency to the Indian markets. This study uses three indicators to test if markets have become developed after globalization in terms of size, liquidity& volatility. For the developed market, the trading volume and value and liquidity should increase and volatility should decline. Volatility has been measured using both traditional as well as modern measures i.e. standard deviation and GARCH technique. Market capitalization ratio has been used as a measure of stock market size and Value Traded Ratio and Turnover Ratio have been used as a measure of liquidity. Results of this study show that the stock markets in India have experienced exponential growth over the study period. Market capitalization ratio, value traded ratio and turnover ratio has increased and volatility has declined making markets more efficient.