A STUDY ON STOCK MARKETS OF DEVELOPING COUNTRIES’ INTEGRATION & RELEVANCE WITH DEVELOPED COUNTRIES’ STOCK MARKETS

Abstract

Globalization and liberalization has made investors to invest and earn more in international stock markets. The trade relationship between the stock markets of developed counties and developing countries are increasing extensively. However, stock markets of those countries’ have some little concern and that’s where the domestic investors have diversification opportunity in international stock markets. So the present study examines the co-integration of stock prices of developed and developing counties and also identifies diversification opportunity for Indian investors. To investigate the relationships, researcher has examined the stock indices of developed counties like United States (S & P 500), United Kingdom (FTSE) and Japan (Nikkei) and developing countries like Brazil (BOVESPA), Russia (RTS), Chine (SSE) and India (NSE). Further, the study employs monthly closing price data which is ranging from 1st January, 2008 to 31st June, 2014. Stock price linkages were examined through Johansen co-integration test to study the long term equilibrium relationships and further tested for VAR (Vector Autoregression). The result shows there is no long term relationship exists among developed and developing markets and further VAR (1) indicates all independent variables are insignificant. However, it is good news for Indian international investor that they will benefit from international diversification.