Integration of Indian Markets with Select Global Markets: Changing Paradigms and Dynamics

Globalization and integration of the international markets has been responsible for inseparable co-existence of time management and money flow across the world. Today it is very difficult for survive without the knowledge of our economic environment which is dynamic. The first principal of investments is to diversify and hold a well diversified portfolio in different stocks, not only in India but to have international diversification. International diversification is sought due to differences in the levels of economic growth and timing of business cycles among various countries. But due to growing international trade, investment flows, deregulation of the financial systems and growth in international capital flows, national economies have become more closely linked. A comprehensive study on stock market integration carries a lot of importance in the present day Situation keeping into consideration both retail and institutional investors. Thus the study tries to understand the intensity of the stock market integration for diversification motives of both retail and institutional investors. The study was conducted considering five major indices of the world namely BSE 30, NSE CNX NIFTY, HANG SANG index, S&P 500, and KLSE COMPOSITE for the period 2002-13. From the study it was observed that correlation among the returns of the indices has increased over the period of time. It may be seen as first indication for the increasing interdependency and integration of the markets. All the indices considered were found to be co-integrated emphasizing the existence of long term relationship. Granger causality test show one-way and two-way integration between the indices which have considerably changed over the time period.