Assessing Stock Market Interdependence: An Analysis of the Interrelation of the Indian Stock Market with the Global Capital Market

Abstract

Many global issues exert influence on the market movement of different equity markets. A knowledge of the interrelationship between the equity market of India and the global stock markets will potentially assist the investors in analyzing the trend of the Indian stock market and how much the events in other stock markets are expected to affect the Indian stock market. Such information is also essential for the portfolio and risk managers to formulate efficient stock portfolios. The primary purpose of this study was to analyse the extent of co-movement between the national stock exchange index with other select global stock market indices. Secondary data were extracted for this study in the form of daily market indices’ closing prices from April 2007 to March 2017. The indices whose daily return data had been extracted for this study were NIKKEI, FTSE, DJI, SHCOMP, CAC 40, DAX, KOSPI and NSE. The results established that all the stock markets are associated with the Indian stock market in some manner, but the Tokyo stock market is not associated at all. The U.S. and the Shanghai market also recorded a weak positive correlation.