International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
IMPACT OF LIBERALIZATION AND GLOBALIZATION ON STOCK EXCHANGE MARKETS: A STUDY...prj_publication
This document analyzes the correlation and interdependence between stock markets in Asia, Europe, and America from 2005-2011. It finds:
1) Asian markets are moderately correlated with each other and with the US, with Singapore most correlated to the US and China least correlated.
2) European markets are highly correlated with each other and with the US, with France most correlated to the US.
3) Asian markets are moderately correlated with European markets, except China which has a low correlation. Singapore is most correlated with European markets.
In summary, it finds stock markets within regions to be highly interdependent, and Asian markets generally less correlated with European and US markets, particularly China.
Co integration and causality analysis of dynamic linkagesprj_publication
This document analyzes the relationship between the Indian stock market and equity markets of developed countries like the U.S., U.K., France, Germany, Japan, Hong Kong, and Australia for the period after the global recession from 2010 to 2013. Johansen cointegration analysis found evidence of a long-term relationship between the markets, though some pairwise comparisons did not show cointegration. Granger causality tests also found short-term relationships between some country pairs. Specifically, the analysis indicates funds from Germany, Japan, and the U.S. could benefit from diversifying into India, while India does not qualify as a diversification opportunity for some other countries due to cointegration.
Co movements of u.s. eu and indian equity markets-portfolio diversification ...Alexander Decker
This document discusses research on the co-movements of equity markets in the US, EU, and India and the implications for international portfolio diversification. It provides an extensive literature review on previous research examining the integration and correlations between developed and emerging stock markets over time. The literature review covers studies investigating the co-movement and integration patterns between markets in North America, Europe, Asia, and other regions. The present study aims to focus on the co-integration relationship between the American, European and Indian equity markets.
Management of shock and volatility spillover effects across equity marketsprj_publication
This document analyzes shock and volatility spillover effects between the stock markets of India, Singapore, and South Korea during three periods: a pre-crisis boom period, the global recession period, and a post-recession period. Using a multivariate BEKK-GARCH model on daily stock index returns, it finds that the markets exhibit strong own shock and volatility effects in all periods. Regarding cross-market spillovers, India plays a leading role in transmitting both shocks and volatility to Singapore and South Korea markets. The findings suggest international investors should consider this strong integration when assessing potential gains from international portfolios.
Dynamic Causal Relationships among the Greater China Stock marketsAM Publications,India
This document examines the dynamic causal relationships between stock markets in Greater China, specifically Mainland China, Hong Kong, and Taiwan. It finds that the Asian financial crisis was a breakpoint, so analyses return and volatility effects over three periods: the full sample period, pre-crisis period, and post-crisis period. Return changes in Mainland China were found to spill over into Hong Kong after the crisis, which then affected returns in Taiwan. Volatility spillover effects between the markets were also examined using a bivariate GARCH model, finding different patterns between the periods.
Reinvestigating sources of movements in real exchange rateAlexander Decker
This document summarizes a study that investigates the sources of movements in real effective exchange rates (REER) for 5 developing countries from 1975-2010. It applies panel cointegration techniques to test if REER is significantly impacted by changes in real variables like terms of trade, government spending, productivity, trade openness, and capital inflows in the long run. The study finds that REER appreciates in response to improvements in terms of trade, productivity, and capital flows. Trade openness is found to depreciate REER. The results support the view that changes in real variables have a significant influence on REER variations.
This study examines the impact of investor sentiment on emerging stock market liquidity using panel data from 12 emerging markets from 2002-2015 and time series data from two aggregate emerging market indices. The study finds a positive relationship between domestic investor sentiment and stock market liquidity across emerging markets. Results also indicate that foreign investor sentiment, particularly from the U.S. and Europe, significantly influences liquidity in emerging stock markets. Three measures of liquidity - trading volume, Amihud's illiquidity ratio, and bid-ask spreads - are used to capture different aspects of liquidity.
This document summarizes a study that examines the nonlinear relationship between real exchange rates and bilateral trade balance between South Korea and the United States from 1985 to 2013. The study finds:
1) There is a cointegrating relationship between real exchange rates and bilateral trade balance in both linear and nonlinear models, suggesting a long-run equilibrium relationship.
2) South Korea-U.S. bilateral trade balance exhibited no J-curve effect when the South Korean won depreciated against the U.S. dollar.
3) A performance evaluation found the nonlinear model was better than the linear model at predicting trade balance, indicating depreciation has a limited effect and sharp currency depreciation can hurt a country's
IMPACT OF LIBERALIZATION AND GLOBALIZATION ON STOCK EXCHANGE MARKETS: A STUDY...prj_publication
This document analyzes the correlation and interdependence between stock markets in Asia, Europe, and America from 2005-2011. It finds:
1) Asian markets are moderately correlated with each other and with the US, with Singapore most correlated to the US and China least correlated.
2) European markets are highly correlated with each other and with the US, with France most correlated to the US.
3) Asian markets are moderately correlated with European markets, except China which has a low correlation. Singapore is most correlated with European markets.
In summary, it finds stock markets within regions to be highly interdependent, and Asian markets generally less correlated with European and US markets, particularly China.
Co integration and causality analysis of dynamic linkagesprj_publication
This document analyzes the relationship between the Indian stock market and equity markets of developed countries like the U.S., U.K., France, Germany, Japan, Hong Kong, and Australia for the period after the global recession from 2010 to 2013. Johansen cointegration analysis found evidence of a long-term relationship between the markets, though some pairwise comparisons did not show cointegration. Granger causality tests also found short-term relationships between some country pairs. Specifically, the analysis indicates funds from Germany, Japan, and the U.S. could benefit from diversifying into India, while India does not qualify as a diversification opportunity for some other countries due to cointegration.
Co movements of u.s. eu and indian equity markets-portfolio diversification ...Alexander Decker
This document discusses research on the co-movements of equity markets in the US, EU, and India and the implications for international portfolio diversification. It provides an extensive literature review on previous research examining the integration and correlations between developed and emerging stock markets over time. The literature review covers studies investigating the co-movement and integration patterns between markets in North America, Europe, Asia, and other regions. The present study aims to focus on the co-integration relationship between the American, European and Indian equity markets.
Management of shock and volatility spillover effects across equity marketsprj_publication
This document analyzes shock and volatility spillover effects between the stock markets of India, Singapore, and South Korea during three periods: a pre-crisis boom period, the global recession period, and a post-recession period. Using a multivariate BEKK-GARCH model on daily stock index returns, it finds that the markets exhibit strong own shock and volatility effects in all periods. Regarding cross-market spillovers, India plays a leading role in transmitting both shocks and volatility to Singapore and South Korea markets. The findings suggest international investors should consider this strong integration when assessing potential gains from international portfolios.
Dynamic Causal Relationships among the Greater China Stock marketsAM Publications,India
This document examines the dynamic causal relationships between stock markets in Greater China, specifically Mainland China, Hong Kong, and Taiwan. It finds that the Asian financial crisis was a breakpoint, so analyses return and volatility effects over three periods: the full sample period, pre-crisis period, and post-crisis period. Return changes in Mainland China were found to spill over into Hong Kong after the crisis, which then affected returns in Taiwan. Volatility spillover effects between the markets were also examined using a bivariate GARCH model, finding different patterns between the periods.
Reinvestigating sources of movements in real exchange rateAlexander Decker
This document summarizes a study that investigates the sources of movements in real effective exchange rates (REER) for 5 developing countries from 1975-2010. It applies panel cointegration techniques to test if REER is significantly impacted by changes in real variables like terms of trade, government spending, productivity, trade openness, and capital inflows in the long run. The study finds that REER appreciates in response to improvements in terms of trade, productivity, and capital flows. Trade openness is found to depreciate REER. The results support the view that changes in real variables have a significant influence on REER variations.
This study examines the impact of investor sentiment on emerging stock market liquidity using panel data from 12 emerging markets from 2002-2015 and time series data from two aggregate emerging market indices. The study finds a positive relationship between domestic investor sentiment and stock market liquidity across emerging markets. Results also indicate that foreign investor sentiment, particularly from the U.S. and Europe, significantly influences liquidity in emerging stock markets. Three measures of liquidity - trading volume, Amihud's illiquidity ratio, and bid-ask spreads - are used to capture different aspects of liquidity.
This document summarizes a study that examines the nonlinear relationship between real exchange rates and bilateral trade balance between South Korea and the United States from 1985 to 2013. The study finds:
1) There is a cointegrating relationship between real exchange rates and bilateral trade balance in both linear and nonlinear models, suggesting a long-run equilibrium relationship.
2) South Korea-U.S. bilateral trade balance exhibited no J-curve effect when the South Korean won depreciated against the U.S. dollar.
3) A performance evaluation found the nonlinear model was better than the linear model at predicting trade balance, indicating depreciation has a limited effect and sharp currency depreciation can hurt a country's
Economic Integration of Pakistan: An Empirical Test of Purchasing Power Parityinventionjournals
This paper empirically analyses the substantiation of (PPP) purchasing power parity theory in Pakistan. For finding the associationin exchange rate’sprecariousness and inflation rate’sdisparity between Pakistan and its thirteen major trading partners, study used OLS method, and for long run relationship applied co-integration, error correction model and panel co-integration technique over the time span of 1972Q1- 2012Q3. OLS results are shown very small values of R 2 . But co-integration, Unit root test results and Panel tests’ results revealed the existence of long run equilibrium relationship between Pakistan and sample countries. The error correction terms also exposed and confirmed the speed of adjustment from disequilibrium to long run equilibrium condition at significant level.Panel unit root test and panel co-integration test by Pedroni also revealed that expected inflation rate differential have a positive andsignificant effect on exchange rate change between Pakistan and its trading partners during the sample period. The results also provided thestrong evidence thateconomic integration between foreign exchange markets and commodity markets among the sample countries is very high. For getting the proper fruits of globalization it is required to enhance the canvas of exports quantity and numbers of export items
Linkages between extreme stock market and currency returnsNicha Tatsaneeyapan
1) The document investigates the empirical link between extreme events in local stock and currency markets for 26 countries using daily return data from 1996-2005.
2) Preliminary results show that in some emerging markets, an extreme stock market decline increased the probability of an extreme currency depreciation on the same day.
3) For currency markets, there is evidence of spillover of extreme events within regions, but limited influence across regions. Extreme events in stock markets are more globally interconnected, especially when originating from the US.
This document summarizes a study that investigates the impact of exchange rate volatility on bilateral trade flows between 13 countries from 1980 to 1998. It finds that the relationship is nonlinear and depends on the interaction between exchange rate volatility and economic uncertainty in the importing country. In contrast to prior studies using aggregate data, this study uses monthly bilateral trade data and computes exchange rate volatility from daily rates. It also introduces a new variable for foreign income uncertainty and its interaction with exchange rate volatility to account for potential nonlinearities. The results show exchange rate volatility can have indirect effects on trade through its interaction with income volatility, and income uncertainty itself may influence trade flows.
This document analyzes the impact of futures trading on market volatility in the Indian equity market, specifically looking at the S&P CNX IT index. It first reviews previous literature which reports mixed findings on the effect of derivatives introduction on volatility. The document then outlines the GARCH methodology used to model conditional volatility in the index returns series before and after the introduction of futures trading in India. Preliminary results found increased market volatility after futures listing, but sensitivity of returns to domestic and global markets remained unchanged. The nature of volatility also altered, with prices becoming more dependent on recent innovations post-derivatives, indicating improved efficiency.
Foreign exchange reserve and its impact on stock market capitalizationAlexander Decker
This document summarizes a research paper that examines the relationship between India's foreign exchange reserves and stock market capitalization on the Bombay Stock Exchange (BSE) from 1990-1991 to 2010-2011. Using regression analysis, unit root tests, and Granger causality tests, the research finds that foreign exchange reserves have a positive impact on BSE market capitalization. The Granger causality test also shows there is unidirectional causality running from foreign exchange reserves to stock market capitalization, but not vice versa. A brief literature review discusses several other studies that have examined relationships between macroeconomic variables like exchange rates, foreign reserves, and stock market prices.
11.foreign exchange reserve and its impact on stock market capitalizationAlexander Decker
This document summarizes a research paper that examines the relationship between India's foreign exchange reserves and stock market capitalization on the Bombay Stock Exchange (BSE) from 1990-1991 to 2010-2011. Using regression analysis, unit root tests, and Granger causality tests, the research finds that foreign exchange reserves have a positive impact on BSE market capitalization. The Granger causality test indicates causality runs unidirectionally from foreign exchange reserves to stock market capitalization, not vice versa. The study aims to provide information to help stock brokers, investors, and policymakers understand how trends in foreign exchange reserves may impact India's stock markets, particularly the BSE.
An econometric analysis of bombay stock exchangeAlexander Decker
This document summarizes research on analyzing returns and volatility of the Bombay Stock Exchange. It examines the presence of day-of-the-week effects and analyzes annual returns. A number of statistical tests are used to test for differences in mean returns and volatility across days of the week. The results do not support the presence of day-of-the-week effects but do find insignificant daily return volatility. The document also reviews several other studies on stock market returns, volatility, and efficiency in other markets globally and in Africa.
The Predictive Power of Intraday-Data Volatility Forecasting Models: A Case S...inventionjournals
The purpose of this study was to compare the predictive power of various volatility forecasting models. Using intraday high-frequency data, this study investigated the influence of time frequency on the predictive power of a volatility forecasting model. The empirical results revealed that the realized volatility increased when the time frequency of forecasts reduced. The overall results showed that when the forecast range was 1 day, among various volatility forecasting models, the autoregressive moving average-generalized autoregressive conditional heteroskedasticity(1, 1) model presented the optimal forecasting performance and the implied volatility model presented the worst forecasting performance for all time frequencies.
The document summarizes a study that examines the relationship between exchange rates and trade balance in India from August 2008 to August 2013. It finds:
1) There is a significant positive relationship between exchange rates and imports as well as between exchange rates and exports based on regression analysis and ANOVA tests.
2) Devaluations of the Indian rupee are associated with increases in both imports and exports in the long run.
3) Exchange rates explain around 17% of the variation in imports and around 10% of the variation in exports during the period examined.
Empirical literature on money demand is mainly based on the estimation of a long run relation by means of time-invariant cointergration approach. Taiwan has experienced the economic and financial regime change since 1979. The purpose of this paper is to test structural breaks in Taiwan long run money demand equation. We examine six of the most influential specifications proposed in the literature. The classical set of explanatory variables (e.g. income and interest rates) is extended on the base of a number underlying economic reasons related to financial, labor and international portfolio characteristics. The results suggest that international financial market variables and the classical specifications are the key determinants of structural instability observed in Taiwan broad money.
IJERA (International journal of Engineering Research and Applications) is International online, ... peer reviewed journal. For more detail or submit your article, please visit www.ijera.com
11.distribution of risk and return a statistical test of normality on dhaka s...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices over different time periods. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior. Additionally, inconsistencies were found between daily/weekly risk and return, suggesting additional return could be achieved without additional risk. The study aims to contribute to evaluating market efficiency assumptions in the Bangladesh capital market.
11.[28 38]distribution of risk and return a statistical test of normality on ...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices from 2002 to 2010. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior required for an efficient market. Additionally, inconsistencies were found between daily and weekly risk and return, suggesting higher returns may be possible without higher risk. The study aims to contribute to evaluating market efficiency and the relationship between risk and return in the Bangladesh capital market.
This document summarizes a paper that analyzes panel estimations of purchasing power parity (PPP) and relative price models for Central and Eastern European countries (CEECs). It tests the PPP model for CEECs using panel econometric techniques and investigates factors that cause deviations from PPP. It also discusses implications for relative price models and estimates of equilibrium exchange rates. The paper finds trend appreciation of nominal exchange rates against the euro in most CEECs, driven mainly by tradables inflation. Formal tests do not support the strong version of PPP. Evidence suggests this is explained by the non-tradables processing component effect. This mechanism also plays an important role in determining relative prices.
This document summarizes recent studies that have examined the relationship between exchange rate volatility and exports using panel data estimation techniques. While earlier time series studies did not generally find a negative effect, more recent panel data studies have found some evidence of a negative impact. However, the results are not entirely robust. This study aims to extend the literature by applying different panel data estimation techniques, including generalized method of moments and random coefficient estimation, to examine the relationship for 12 industrial countries from 1977 to 2003.
This presentation summarizes a thesis that examines the role of stock prices in Pakistan's monetary policy transmission mechanism. The presentation outlines the introduction, research hypothesis, literature review, data and methodology, econometric model, and planned results and discussion sections. The introduction discusses monetary policy, transmission mechanisms, and the relevance of stock prices through Tobin's q theory and wealth effects. The literature review covers studies on monetary policy and macroeconomic variables, stock prices as an asset price channel, and stock markets as a sole transmission channel. Vector autoregression and structural vector autoregression models are proposed to analyze quarterly data from 1991 to 2010 on monetary policy instruments, stock prices, output, inflation and other variables.
This document summarizes a paper that investigates the presence of structural breaks and long memory in the volatility of Volatility Index (VIX) exchange-traded funds (ETFs) returns. Using daily data from 2011 to 2013, the study examines for structural changes in the variance of VIX ETF series and models their relationship by incorporating identified breaks into ARFIMA and FIGARCH models to measure long memory. The results show dual long memory in VIX ETFs is related to their term structure and incorporating structural breaks leads to better estimation, providing evidence for or against market efficiency.
Co movements of u.s. eu and indian equity markets-portfolio diversification ...Alexander Decker
This document discusses research on the co-movements of equity markets in the US, EU, and India and the implications for international portfolio diversification. It provides an extensive literature review on previous research examining correlations and co-integration between developed and emerging stock markets. The literature review covers studies investigating the degree of integration between markets over time and how globalization has impacted opportunities for diversification. The present study aims to focus on the co-integration relationship between the American, European, and Indian equity markets.
This article seeks to examine the impact of the Bangladesh’s stock market development on its economic growth from the period of 1989-2012. We have used Johansen Cointegration test to estimate the long-run equilibrium relationship between the variables and the Granger causality test was conducted in order to establish causal relationship, while the model was estimated using the error correction model (ECM). Johansen co-integration test results show that the Bangladesh’s stock market development and economic growth are co-integrated. This indicates that a long run relationship exists between stock market development and economic growth in Bangladesh. The causality test results suggest a unidirectional causality from stock market development to the economic growth. On the other hand, there is no “reverse causation” from economic growth to stock market development. The evidence from this study reveals that the activities in the stock market tend to impact positively on the economy. It is recommended therefore that stock market regulatory authority should therefore address policy issues that are capable of boosting the investors’ confidence through improved policy formulation and creation of awareness.
This document discusses a study on the impact of macroeconomic variables on India's stock market. It begins with an abstract noting that stock market performance reflects a country's economic conditions. It then reviews literature showing contradictory findings on which specific economic factors influence stock prices and the degree of influence. The study aims to examine the relationship between sectoral stock indices and respective sectoral GDP in India using monthly data from 2005 to 2012. It hypothesizes that movement in the BSE indices may be caused by selected macroeconomic variables or vice versa.
The Causality Relationship between Hnx Index and Stock Trading Volume in Hano...IJAEMSJORNAL
This paper examines the casual relations between the market return and trading volume for the Ha Noi Stock Exchange during the period from May 3th , 2013 to March 2rd, 2016. This paper uses Granger test and the results showed that the change of the volume of transactions that affect the change of HNX-Index. On the basis of this conclusion, we shall determine the degree of influence of the change in trading volume with HNX-Index by means of regression analysis.
Co- Movements of India’s Stock Market with Bond Market and Select Global Stoc...inventionjournals
The study intends to carry out a comparative analysis of performance of stocks and bond market in India, and moreover comparing the Indian stock market with select global stock market. It is found that Indian stock market has a very high correlation with developed stock markets. And it is also found that bond market is negatively correlated with the stock market. The study indicates the existence of linear combination between stock returns of India with U.S, U.K, Japan and Government Bond market. In short, there exist a long term relationship and long run equilibrium between these markets in short run there may be disequilibrium. Comparison of India’s stock and bond market will benefit in creating optimal portfolio possessing minimum risk and maximum return, when the Indian stock or bond index facing a trouble.
Economic Integration of Pakistan: An Empirical Test of Purchasing Power Parityinventionjournals
This paper empirically analyses the substantiation of (PPP) purchasing power parity theory in Pakistan. For finding the associationin exchange rate’sprecariousness and inflation rate’sdisparity between Pakistan and its thirteen major trading partners, study used OLS method, and for long run relationship applied co-integration, error correction model and panel co-integration technique over the time span of 1972Q1- 2012Q3. OLS results are shown very small values of R 2 . But co-integration, Unit root test results and Panel tests’ results revealed the existence of long run equilibrium relationship between Pakistan and sample countries. The error correction terms also exposed and confirmed the speed of adjustment from disequilibrium to long run equilibrium condition at significant level.Panel unit root test and panel co-integration test by Pedroni also revealed that expected inflation rate differential have a positive andsignificant effect on exchange rate change between Pakistan and its trading partners during the sample period. The results also provided thestrong evidence thateconomic integration between foreign exchange markets and commodity markets among the sample countries is very high. For getting the proper fruits of globalization it is required to enhance the canvas of exports quantity and numbers of export items
Linkages between extreme stock market and currency returnsNicha Tatsaneeyapan
1) The document investigates the empirical link between extreme events in local stock and currency markets for 26 countries using daily return data from 1996-2005.
2) Preliminary results show that in some emerging markets, an extreme stock market decline increased the probability of an extreme currency depreciation on the same day.
3) For currency markets, there is evidence of spillover of extreme events within regions, but limited influence across regions. Extreme events in stock markets are more globally interconnected, especially when originating from the US.
This document summarizes a study that investigates the impact of exchange rate volatility on bilateral trade flows between 13 countries from 1980 to 1998. It finds that the relationship is nonlinear and depends on the interaction between exchange rate volatility and economic uncertainty in the importing country. In contrast to prior studies using aggregate data, this study uses monthly bilateral trade data and computes exchange rate volatility from daily rates. It also introduces a new variable for foreign income uncertainty and its interaction with exchange rate volatility to account for potential nonlinearities. The results show exchange rate volatility can have indirect effects on trade through its interaction with income volatility, and income uncertainty itself may influence trade flows.
This document analyzes the impact of futures trading on market volatility in the Indian equity market, specifically looking at the S&P CNX IT index. It first reviews previous literature which reports mixed findings on the effect of derivatives introduction on volatility. The document then outlines the GARCH methodology used to model conditional volatility in the index returns series before and after the introduction of futures trading in India. Preliminary results found increased market volatility after futures listing, but sensitivity of returns to domestic and global markets remained unchanged. The nature of volatility also altered, with prices becoming more dependent on recent innovations post-derivatives, indicating improved efficiency.
Foreign exchange reserve and its impact on stock market capitalizationAlexander Decker
This document summarizes a research paper that examines the relationship between India's foreign exchange reserves and stock market capitalization on the Bombay Stock Exchange (BSE) from 1990-1991 to 2010-2011. Using regression analysis, unit root tests, and Granger causality tests, the research finds that foreign exchange reserves have a positive impact on BSE market capitalization. The Granger causality test also shows there is unidirectional causality running from foreign exchange reserves to stock market capitalization, but not vice versa. A brief literature review discusses several other studies that have examined relationships between macroeconomic variables like exchange rates, foreign reserves, and stock market prices.
11.foreign exchange reserve and its impact on stock market capitalizationAlexander Decker
This document summarizes a research paper that examines the relationship between India's foreign exchange reserves and stock market capitalization on the Bombay Stock Exchange (BSE) from 1990-1991 to 2010-2011. Using regression analysis, unit root tests, and Granger causality tests, the research finds that foreign exchange reserves have a positive impact on BSE market capitalization. The Granger causality test indicates causality runs unidirectionally from foreign exchange reserves to stock market capitalization, not vice versa. The study aims to provide information to help stock brokers, investors, and policymakers understand how trends in foreign exchange reserves may impact India's stock markets, particularly the BSE.
An econometric analysis of bombay stock exchangeAlexander Decker
This document summarizes research on analyzing returns and volatility of the Bombay Stock Exchange. It examines the presence of day-of-the-week effects and analyzes annual returns. A number of statistical tests are used to test for differences in mean returns and volatility across days of the week. The results do not support the presence of day-of-the-week effects but do find insignificant daily return volatility. The document also reviews several other studies on stock market returns, volatility, and efficiency in other markets globally and in Africa.
The Predictive Power of Intraday-Data Volatility Forecasting Models: A Case S...inventionjournals
The purpose of this study was to compare the predictive power of various volatility forecasting models. Using intraday high-frequency data, this study investigated the influence of time frequency on the predictive power of a volatility forecasting model. The empirical results revealed that the realized volatility increased when the time frequency of forecasts reduced. The overall results showed that when the forecast range was 1 day, among various volatility forecasting models, the autoregressive moving average-generalized autoregressive conditional heteroskedasticity(1, 1) model presented the optimal forecasting performance and the implied volatility model presented the worst forecasting performance for all time frequencies.
The document summarizes a study that examines the relationship between exchange rates and trade balance in India from August 2008 to August 2013. It finds:
1) There is a significant positive relationship between exchange rates and imports as well as between exchange rates and exports based on regression analysis and ANOVA tests.
2) Devaluations of the Indian rupee are associated with increases in both imports and exports in the long run.
3) Exchange rates explain around 17% of the variation in imports and around 10% of the variation in exports during the period examined.
Empirical literature on money demand is mainly based on the estimation of a long run relation by means of time-invariant cointergration approach. Taiwan has experienced the economic and financial regime change since 1979. The purpose of this paper is to test structural breaks in Taiwan long run money demand equation. We examine six of the most influential specifications proposed in the literature. The classical set of explanatory variables (e.g. income and interest rates) is extended on the base of a number underlying economic reasons related to financial, labor and international portfolio characteristics. The results suggest that international financial market variables and the classical specifications are the key determinants of structural instability observed in Taiwan broad money.
IJERA (International journal of Engineering Research and Applications) is International online, ... peer reviewed journal. For more detail or submit your article, please visit www.ijera.com
11.distribution of risk and return a statistical test of normality on dhaka s...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices over different time periods. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior. Additionally, inconsistencies were found between daily/weekly risk and return, suggesting additional return could be achieved without additional risk. The study aims to contribute to evaluating market efficiency assumptions in the Bangladesh capital market.
11.[28 38]distribution of risk and return a statistical test of normality on ...Alexander Decker
This document summarizes a research study that examined the normal distribution of risk and return on the Dhaka Stock Exchange in Bangladesh. The study used statistical tests to analyze daily, weekly, and monthly returns calculated from three DSE indices from 2002 to 2010. The results found evidence of skewness and kurtosis in the returns, indicating they were not normally distributed and contradicting the assumption of random walk behavior required for an efficient market. Additionally, inconsistencies were found between daily and weekly risk and return, suggesting higher returns may be possible without higher risk. The study aims to contribute to evaluating market efficiency and the relationship between risk and return in the Bangladesh capital market.
This document summarizes a paper that analyzes panel estimations of purchasing power parity (PPP) and relative price models for Central and Eastern European countries (CEECs). It tests the PPP model for CEECs using panel econometric techniques and investigates factors that cause deviations from PPP. It also discusses implications for relative price models and estimates of equilibrium exchange rates. The paper finds trend appreciation of nominal exchange rates against the euro in most CEECs, driven mainly by tradables inflation. Formal tests do not support the strong version of PPP. Evidence suggests this is explained by the non-tradables processing component effect. This mechanism also plays an important role in determining relative prices.
This document summarizes recent studies that have examined the relationship between exchange rate volatility and exports using panel data estimation techniques. While earlier time series studies did not generally find a negative effect, more recent panel data studies have found some evidence of a negative impact. However, the results are not entirely robust. This study aims to extend the literature by applying different panel data estimation techniques, including generalized method of moments and random coefficient estimation, to examine the relationship for 12 industrial countries from 1977 to 2003.
This presentation summarizes a thesis that examines the role of stock prices in Pakistan's monetary policy transmission mechanism. The presentation outlines the introduction, research hypothesis, literature review, data and methodology, econometric model, and planned results and discussion sections. The introduction discusses monetary policy, transmission mechanisms, and the relevance of stock prices through Tobin's q theory and wealth effects. The literature review covers studies on monetary policy and macroeconomic variables, stock prices as an asset price channel, and stock markets as a sole transmission channel. Vector autoregression and structural vector autoregression models are proposed to analyze quarterly data from 1991 to 2010 on monetary policy instruments, stock prices, output, inflation and other variables.
This document summarizes a paper that investigates the presence of structural breaks and long memory in the volatility of Volatility Index (VIX) exchange-traded funds (ETFs) returns. Using daily data from 2011 to 2013, the study examines for structural changes in the variance of VIX ETF series and models their relationship by incorporating identified breaks into ARFIMA and FIGARCH models to measure long memory. The results show dual long memory in VIX ETFs is related to their term structure and incorporating structural breaks leads to better estimation, providing evidence for or against market efficiency.
Co movements of u.s. eu and indian equity markets-portfolio diversification ...Alexander Decker
This document discusses research on the co-movements of equity markets in the US, EU, and India and the implications for international portfolio diversification. It provides an extensive literature review on previous research examining correlations and co-integration between developed and emerging stock markets. The literature review covers studies investigating the degree of integration between markets over time and how globalization has impacted opportunities for diversification. The present study aims to focus on the co-integration relationship between the American, European, and Indian equity markets.
This article seeks to examine the impact of the Bangladesh’s stock market development on its economic growth from the period of 1989-2012. We have used Johansen Cointegration test to estimate the long-run equilibrium relationship between the variables and the Granger causality test was conducted in order to establish causal relationship, while the model was estimated using the error correction model (ECM). Johansen co-integration test results show that the Bangladesh’s stock market development and economic growth are co-integrated. This indicates that a long run relationship exists between stock market development and economic growth in Bangladesh. The causality test results suggest a unidirectional causality from stock market development to the economic growth. On the other hand, there is no “reverse causation” from economic growth to stock market development. The evidence from this study reveals that the activities in the stock market tend to impact positively on the economy. It is recommended therefore that stock market regulatory authority should therefore address policy issues that are capable of boosting the investors’ confidence through improved policy formulation and creation of awareness.
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This document presents a study on analyzing the integration of major global stock market indices. The study aims to identify interdependencies among 10 stock market indices from Asia, Europe, and America. The objectives are to determine the co-integration among indices using Granger causality tests. Methodologies used include collecting daily index data from 2001-2020, calculating returns, performing normality tests, correlation analysis, unit root tests, co-integration tests, and Granger causality tests. The results could help portfolio managers and investors design diversification strategies by understanding how policies interconnected global stock markets.
1) The document examines the relationship between stock market liquidity and stock returns in 27 emerging markets from 1992 to 1999.
2) It finds that stock returns are positively correlated with measures of market liquidity such as turnover ratio, trading value, and turnover-volatility multiple, in both cross-sectional and time-series analyses.
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This document summarizes a research article that examines the co-movement and integration of 10 stock markets over the period from January 1998 to January 2020. The markets studied are India (BSE Sensex), Germany (DAX), Indonesia (JKSE), Mexico (MXX), US (IXIC), France (FCHI), Eurozone (EURO), Japan (HIS), and South Korea (KOSPI). The researchers used statistical methods like correlation analysis, Granger causality tests, cointegration tests, and variance decomposition to analyze the short-term and long-term relationships between the various stock indices. The results provide insights into how integrated the markets are and how shocks to one market influence others. This has implications
This document analyzes the relationship between stock market liquidity and stock returns in 27 emerging equity markets from January 1992 to December 1999. It finds that stock returns are positively correlated with measures of market liquidity, including turnover ratio, trading value, and turnover-volatility multiple, in both cross-sectional and time-series analyses. This relationship holds even after controlling for other factors and contrasts with theories supported by studies of developed markets, where liquidity and returns are negatively correlated. The findings suggest emerging markets have a lower degree of integration with the global economy.
THE STOCK MARKET VOLATILITY BETWEEN CHINA AND ASEAN COUNTRIES ASSOCIATION STU...IJDKP
By constructing the volatility network of stock market indexes in China and ASEAN, the mechanism of
transnational market risk transmission and the characteristics of key nodes are analysed. Finding the
volatility network is a good description of the linkage and tightness of the various share index volatility.
The COVID-2019 led to a significant increase in convergence of behaviour patterns of major country
share indexes, and significant differences in node changes and topological features of the volatility
network. A few share indexes in Singapore and Thailand are key nodes and the source of market risk in the
transnational stock market. Dynamic analysis shows that the evolution of share index volatility network
reflects that the overall risk of volatility network changes with time, the information link structure of the
market changes with time, and major emergencies break the original structure and trigger the information
connection in the market. The findings of this paper have important implications for understanding the
characteristics of transnational risk transmission between the stock markets of China and ASEAN.
THE STOCK MARKET VOLATILITY BETWEEN CHINA AND ASEAN COUNTRIES ASSOCIATION STU...IJDKP
By constructing the volatility network of stock market indexes in China and ASEAN, the mechanism of
transnational market risk transmission and the characteristics of key nodes are analysed. Finding the
volatility network is a good description of the linkage and tightness of the various share index volatility.
The COVID-2019 led to a significant increase in convergence of behaviour patterns of major country
share indexes, and significant differences in node changes and topological features of the volatility
network. A few share indexes in Singapore and Thailand are key nodes and the source of market risk in the
transnational stock market. Dynamic analysis shows that the evolution of share index volatility network
reflects that the overall risk of volatility network changes with time, the information link structure of the
market changes with time, and major emergencies break the original structure and trigger the information
connection in the market. The findings of this paper have important implications for understanding the
characteristics of transnational risk transmission between the stock markets of China and ASEAN.
The Granger causality model is used in the current study to analyze the short-run cause–effect relationship between two stock market indices between 2001 and 2021 using time series data of the daily closing prices of the BSE Sensex and S&P 500 indices listed in the Indian and US stock markets, respectively. The Granger causality model and the augmented Dickey–Fuller test for data stationarity were used in the study to examine the short-term causal link between two market indices during the time period. The outcomes demonstrated the connection between the Indian and US stock markets. The findings imply that both markets have a dynamic, bidirectional relationship. This study provides the investor’s essential inputs for investment decision-making and portfolio diversification. In the current era of globalization, the study is crucial because investors and fund managers now place a high priority on stock market integration. Through fund diversification across equity markets, this study subsequently makes it easier to reduce portfolio risk by providing useful insights on diversification strategies across the stock markets.
An empirical study on the relationship between stock market index and the nat...Alexander Decker
This document discusses a study that investigates the relationship between stock market development and economic growth in Jordan from 2000-2012. It uses various econometric models including unit root tests, Granger causality tests, and cointegration analysis. The results of the Granger causality tests indicate there is unidirectional causality from stock market development to economic growth. The study aims to examine the long-run and short-run dynamics between Jordan's stock market index and real GDP.
1.[1 15]study of bric countries in the financial turnmoilAlexander Decker
This document analyzes the dynamic relationship between emerging BRIC countries (Brazil, Russia, India, China) during financial turmoil from 2008-2011. It aims to quantify the interrelationships between stock market indices of these countries, using the IBOV, RTS, S&P Nifty, and SSE Composite Index. Statistical tests show the indices are non-normally distributed but stationary. Granger causality tests examine causal relationships between the BRIC country indices. Previous literature has found mixed evidence on cointegration between developed and emerging markets, and that BRIC countries have become more integrated globally in recent decades.
Abstract The main purpose of this paper is to investigate whether stock prices and exchange rates are related to each
other or not. Both the short term and the long term association between these variables are discovered. The study applies
monthly and quarterly data on two gulf countries, including Kingdom Saudi Arabia (KSA) and United Arab Emirate (UAE)
for the period January 2008 to December 2009. The results of this study in the short term found that the exchange rate
influence positively on the stock market price index for United Arab Emirate and there is no association between them for
Kingdom Saudi Arabia. Moreover the study in the long term found that the exchange rate influence negatively on stock
market price index for the United Arab Emirate. While no association between these variables in Kingdom Saudi Arabia.
Traditional methods to measure volatility case study of selective developed ...Alexander Decker
This document analyzes stock market volatility across developed and emerging markets from 1997-2009 using traditional measures like standard deviation. Key findings include:
- Returns for all markets showed non-normality, with emerging markets exhibiting more non-normality and higher kurtosis, indicating more peaked return distributions.
- Volatility, as measured by standard deviation, was highest for Turkey, Brazil, and China - all emerging markets. However, some developed markets were found to be more volatile than some emerging markets, suggesting volatility is not unique to emerging markets.
- The analysis concludes volatility should be measured using other methods like extreme value analysis due to the heavy-tailed distributions found in emerging market returns. This could provide better guidance for
This document examines the relationship between stock market indices and macroeconomic variables in India during the post-globalization period. It provides background on studies that have explored this relationship in other countries and contexts. The study uses secondary data on macroeconomic indicators and the BSE Sensex index from 1992-2011. Growth trends for the Sensex and variables like GDP, capital formation, savings, and others are analyzed using linear, exponential, and quadratic functions. Preliminary results suggest that some variables like GDP, capital formation, and savings exhibited high growth and acceleration over this period, while others like gold prices and interest rates saw slower or decelerating growth. The analysis aims to better understand the direction and nature of the relationship between the Sensex
This document examines the relationship between stock market indices and macroeconomic variables in India during the post-globalization period. It provides background on studies that have explored this relationship in other countries and contexts. The study uses secondary data on macroeconomic indicators and the BSE Sensex index from 1992-2011. Growth trends are analyzed using linear, exponential, and quadratic functions to understand how variables have moved over time. Preliminary results suggest several macro variables like GDP, capital formation, savings, and money supply have grown significantly and accelerated over the period, while others like industrial output and gold prices have had slower or decelerating growth. The analysis aims to better understand the direction and nature of the relationship between the Sensex and macroeconomic factors
11.relationships between indian and other south east stock marketsAlexander Decker
This document analyzes the relationship between stock markets in South-East Asian countries and India from 1991 to 2011. It finds:
1) There is interdependence between the stock markets of South-East Asian countries, as shown by Granger causality tests. The Indian stock market has significant influence over South-East Asian markets.
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3) Co-integration tests found the stock market index series for each country contained a unit root, indicating long-run relationships and
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Financial integration between BRICS and developed stock markets
1. International Journal of Business and Management Invention
ISSN (Online): 2319 – 8028, ISSN (Print): 2319 – 801X
www.ijbmi.org || Volume 4 Issue 1 || January. 2015 || PP.65-71
www.ijbmi.org 65 | Page
Financial integration between BRICS and developed stock
markets
Tripti Nashier
Research Scholar, Department of Financial Studies, University of Delhi
ABSTRACT : This study examines the integration among the stock markets of BRICS (Brazil, Russia, India,
China and South Africa) and the stock markets of U.S. and U.K. Using daily closing price of major stock
indices of these countries from 1st January 2004 to 31st December 2013, the integration is modeled using the
correlation test and the Johansen’s co-integration test. The study found evidence for both the short-term static
and long-term dynamic integration between the stock markets. This suggests that there are limited benefits of
any diversification or speculative activities between these markets. Results of this study have implications for
policy makers in responding to increasing financial interactions across borders.
KEYWORDS : Cointegration, Correlation, Stock Markets, Market Linkages, Unit root test.
I. INTRODUCTION
The investors’ interest in international diversification has increased with relaxation of capital control
among the economies. International diversification of portfolio assets improves the risk-reward ratio. However,
when equity markets are “cointegrated”, the benefit of international diversification is limited. The presence of
common factors limits the amount of independent variation of the equity markets. Cointegration among equity
markets implies that there are fewer assets available to investors for portfolio diversification. Moreover,
cointegration is also suggestive of inefficiency in the markets.
With globalisation, the investors have become increasingly more active in foreign capital markets. The
investment in international financial market has seen a spectacular increase. As a consequence of market
liberalisation, financial markets tend to become more integrated. This integration process implies increased co-
movements between financial markets which can have negative effects on benefits from international
diversification. However, the financial crises in America led investors to search for other emerging markets
(Flight to quality phenomenon) like the BRICS emerging markets. Those markets can provide more
opportunities to increase benefits from international diversification. The endeavour to bring these economies
into line with the western developed economies gives them an important priority and led investors to study these
investment opportunities. The higher integration between international markets calls for studying the integration
between developed and emerging markets to study the important potential of emerging markets for international
portfolio diversification.
In the aftermath of these events, it is interesting to investigate how the long term relationship between
international financial markets has emerged. The aim of this paper to investigate whether there is long-run
relationship, called co-integration, between the stock markets of emerging economies of BRICS (Brazil, Russia,
India, China, South Korea and South Africa) and developed markets of US and UK. This paper hopes to extend
the previous research on these topics by investigating the impact of the global financial crisis of 2008 on the
integration between the afore-mentioned markets. This paper hopes to provide new insights in the area of stock
market linkages.
II. REVIEW OF LITERATURE
The earlier literature pertaining to stock market integration provides strong evidence of linkages
among the stock markets around the globe, as a result of global economic integration.Forbes and Rigobon
(1998) tested for Southeast Asian stock market co-movement during the 1997 Asian financial crisis, the 1994
Mexican peso crisis, and the 1987 U.S. stock market crisis. They suggested that the high market co-movement
during these periods was a continuation of strong cross-market linkages. Chen, Firth, and Rui (2002)
investigated the interdependence of the major stock markets in Latin America over the period 1995-2000,
employing co-integration analysis. Their results suggested that the potential for diversifying risk, by investing in
different Latin American markets, was limited.
2. Financial integration between BRICS and developed …
www.ijbmi.org 66 | Page
Nieh (2002) investigated the effect of the Asian financial crisis on the inter-relationships between
exchange rate volatility, exports, imports, and productivity for several East Asian economies. Co-integration
tests showed no change in the long-run relationships among these variables during the crisis. Click and Plummer
(2004) considered whether the ASEAN markets are integrated or segmented using the time series technique of
co integration to extract long-run relationships. The empirical results suggested that the stock markets were co
integrated. Hsiao, Wang, Yang and Li (2006) studied the long-run price relationships and the dynamic price
transmission among the USA, Germany, and four major Eastern European emerging stock markets with
particular attention to the impact of the 1998 Russian financial crisis. The results show that both the long-run
price relationship and the dynamic price transmission were strengthened among these markets after the crisis.
Awokuse, Chopra and Bessler (2008) investigated the evolving pattern of the interdependence among
selected Asian emerging markets and three major stock markets (Japan, UK and US). The results indicate that
the Japan and the US have the greatest influence on the emerging markets while the influence of Singapore and
Thailand has increased since the Asian financial crisis.
III. RESEARCH METHODOLOGY
Data: The data set used in this study comprises daily close quotes of major stock market indices of the
stock markets of BRICS, US and UK. The indices chosen for the purpose of this study are shown in Table 1.
Table 1: Stock Indices used
Country Stock Exchange (Abbreviation) Index Used (Abbreviation)
Brazil
Bolsa de Valores, Mercadorias & Futuros de
São Paulo (BM&F BOVESPA)
Índice BOVESPA (IBOVESPA)
Russia Moscow Exchange Russia Trading System Index (RTSI)
India National Stock Exchange of India (NSE) S&P CNX Nifty (NIFTY)
China Shanghai Stock Exchange(SSE)
Shanghai Stock Exchange Composite
Index (SHCOMP)
South African Johannesburg Stock Exchange (JSE)
FTSE/JSE Top 40 Stock Index
(FTSE/JSE 40)
United States New York Stock Exchange (NYSE) Dow Jones Industrial Average (DJIA)
United Kingdom London Stock Exchange (LSE) FTSE-100 (FTSE-100)
Data consists of the daily closing prices for each index from 1st January 2004 to 31st December 2013
which gives a total of 2201 observations. The data is omitted for days when any of the stock markets were
closed. Thus data is collected on the same dates across the stock exchanges. The closing prices of market
indices are obtained from the respective websites of the stock exchanges. The closing prices series are converted
to US dollars return series. US dollar return series is chosen for three reasons. First, a common currency across
countries allows for comparisons of the results. Second, several emerging markets have relatively high inflation
rates, which would lead to inflated returns if returns are denominated in the local currency. Finally, these indices
reflect changes in the exchange rates as well since they have been calculated in dollars.
The data is analysed using E-Views 7 statistical software package.
Methodology: The analysis is done on the daily log return series of the indices; computed as follows:
Rt = Log Pt - Log Pt – 1
where Rt is the daily return at time t. Pt -1 and Pt are daily closing prices of the indices at two successive days,
t-1 and t respectively. In order to analyse the integration between stock markets of BRICS with developed stock
markets of US and UK, the study adopts three two methods: Correlation and Johensen’s Cointegration method.
Correlation Test: Correlation is used to measure the strength and direction of the association between different
stock indices. The correlation coefficient indicates the extent to which a stock market is linearly associated with
another stock market. If a stock market is linearly associated with or influenced by another market, the
correlation coefficient between the two markets is higher (close to 1).However, if the return series are
heteroskedastic, correlation coefficients may be biased upward and do not provide a sound basis for exploring
interdependence. Moreover, correlation only measures the degree of linear association between two variables. It
does not provide insight on the long run dynamic linkages between stock markets. Therefore, stock market
integration is analysed employing Johansen’s Cointegration method.
3. Financial integration between BRICS and developed …
www.ijbmi.org 67 | Page
Unit Root Test: For presence of cointegration, all the return series are required to be integrated of the same
order. Therefore, it is necessary to ascertain that the order in which the return series are stationary. In the
economic practice, the Augmented Dickey Fuller Test developed by Dickey and Fuller (1979) is widely used to
determine the order of integration. The Augmented Dickey Fuller (ADF) determines the unit root property of the
higher order auto regressive processes i.e. return series Xt, by regressing it as follows:
ΔX𝑡= 0+𝛿X𝑡−1+ 𝑖ΔX𝑡− 𝑖+ε𝑡 (1)
where Δ is the first difference operator, ε𝑡 is the white noise error term and ρ is the lag order of the
autoregressive process and 𝛿= ρ-1. The idea behind the ADF test is to include enough lagged terms so that the
error term is serially uncorrelated. The null hypothesis is that 𝛿=0 i.e. the series has a unit root and is thus non-
stationary.
Johansen’s Cointegration: Two or more time series with stochastic trends can move together so closely over
the long run that they appear to have a common trend (Stock and Watson, 2003). This relationship is known as
cointegration. If At and Bt are integrated of order one, and for some cointegration coefficient θ, At – θBt is
integrated of order zero, then At and Bt are said to be cointegrated. The difference, At–θBt, eliminates the
common stochastic trend. The Johansen’s Cointegration method was chosen to test cointegration between
indices for the two time periods (pre and post crisis). The Johansen (1988) method relies on the relationship
between the rank of a matrix and its characteristic roots (or eigenvalues). The basis of Johansen’s approach is to
estimate by maximum likelihood methods, a VAR equation of the form:
ΔX𝑡= ᴨX𝑡−1+ 𝑖ΔX𝑡− 𝑖 + ε𝑡
ᴨ= Ai-I and i= - Aj (2)
where i determines the number of lags specified in the dynamic VAR relationship, Δ is the first-difference lag
operator, Xt is a (p x 1) random vector of time series with I(1), Γ are (p x p) matrices of parameters and r is the
number of cointegrating relations or vectors (i.e. the cointegrating rank). To test for cointegration between the
two variables, Johansen’s method estimates the Π matrix and also tests whether we can reject the restrictions
implied by the reduced rank of Π. According to Johansen (1988), ‘the matrix Π contains information about the
long-run relationships between the variables in the data vector’.
If r = p (i.e. Π has full rank), then all elements in Xt are stationary I(0). In this case, Π is the matrix of the form
Π = aβ’
, where α and β are (p x r) matrices of full rank. Johansen (1988) provides the Trace statistic to test for
the null hypothesis of no cointegration, with Trace Statistic = -T λi) where λ is the estimated
values of the characteristic roots obtained from the estimated Π matrix, T is the number of usable observations
and r is the number of cointegrating vectors. The Trace test is a joint test that tests the null hypothesis of no
cointegration (H0: r = 0) against the alternative hypothesis of cointegration (H1: r > 0).
Johansen (1988) also provided the maximum eigenvalue statistic = T ln(1- λr+1). The Maximum Eigenvalue test
conducts tests on each eigenvalue separately. It tests the null hypothesis that the number of cointegrating vectors
is equal to r against the alternative of r+1 cointegrating vectors. The maximum eigenvalue test examines the
number of cointegrating vectors. If the variables in Xt are not cointegrated, the rank of Π is equal to zero and all
the characteristic roots are equal to zero. Given that ln(1)=0, each of the expressions ln(1- λi) will be equal to
zero in that case.
IV. RESULTS
Descriptive Statistics: The descriptive statistics for returns of all the seven stock indices are given in
Table 2. A preliminary investigation of summary statistics of the stock market returns reveals that average daily
returns of the markets are positive and range between 0.03% and 0.07%. The Brazilian market provides the
highest return with an average of 0.079% followed by Russian market recording an average return of 0.078%.
The volatility, measured by standard deviation, of Brazilian market is also the highest. The lowest mean return
and volatility is observed for the United States market. The returns on price indices of all the BRICS markets are
higher than developed markets (U.S. and U.K.). The returns of all the market indices are negatively skewed in
the period.
4. Financial integration between BRICS and developed …
www.ijbmi.org 68 | Page
Table 2: Descriptive Analysis of Stock Market Returns
BRAZIL RUSSIA INDIA CHINA S. AFRICA U.S. U.K.
Mean 0.00079 0.00078 0.00065 0.00045 0.00073 0.00031 0.00040
Standard Error 0.00048 0.00045 0.00042 0.00038 0.00041 0.00024 0.00028
Standard
Deviation 0.02237 0.02076 0.01933 0.01761 0.01923 0.01109 0.01323
Sample Variance 0.00050 0.00043 0.00037 0.00031 0.00037 0.00012 0.00018
Kurtosis 2.88575 4.28336 9.67960 4.11196 2.32168 6.75941 3.81825
Skewness -0.16878 -0.52225 -0.11193 -0.34433 -0.22811 -0.21639 -0.20165
Range 0.27248 0.23658 0.35554 0.21720 0.19509 0.17104 0.16927
Minimum -0.12285 -0.13387 -0.16395 -0.12731 -0.08693 -0.08014 -0.07016
Maximum 0.14963 0.10272 0.19159 0.08988 0.10816 0.09090 0.09910
It is observed that the market providing the highest return is also the most volatile and the market providing the
least return is least volatile. This is in congruence with the high risk-high return theory. It is also seen that the
developed markets have a lower standard deviation than the BRICS markets. Figure 1 presents time series plots
of the returns for all seven stock markets used in the study. Of particular note is the high volatility of the market
returns series associated with the 2008 global financial crisis. The stock market of U.S. appears to have the
sharpest increase in volatility over this time compared with the other stock markets.
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2005-08-31
2005-12-28
2006-05-08
2006-08-29
2007-01-09
2007-05-15
2007-09-10
2008-01-16
2008-05-27
2008-09-18
2009-01-30
2009-06-08
2009-10-01
2010-02-08
2010-06-14
2010-10-06
2011-02-15
2011-06-30
2011-11-01
2012-03-07
2012-07-10
2012-11-13
2013-03-25
2013-07-24
2013-11-20
Log BRAZIL Log CHINA
Log INDIA Log RUSSIA
Log S. AFRICA Log U.K.
Log U.S.
Figure 1: Movement of Log returns of the stock indices over the sample period.
Correlation: Correlation coefficients between the indices are studied to investigate the extent to which the stock
markets under consideration display co-movements. The results in Table 3 indicate the correlation between the
stock markets. The results indicate that the coefficients of correlation across the stock market returns are
positive. Correlation coefficients range between 0.0386 and 0.6402. The stock markets of Russia and South
Africa are most highly correlated. The stock markets of China and U.S. have lowest correlation coefficient.
Overall, the results from the correlation coefficients suggest some insight on the short-term integration between
stock markets. This measure is not adequate to investigate long-run relationships across markets.
Table 3: Correlation Matrix for Stock Index Returns
BRAZIL RUSSIA INDIA CHINA S. AFRICA U.S. U.K.
BRAZIL 1
RUSSIA 0.4846 1
INDIA 0.3554 0.4354 1
CHINA 0.1633 0.1733 0.2689 1
S. AFRICA 0.5248 0.6402 0.5263 0.2226 1
U.S. 0.6227 0.3661 0.2437 0.0386 0.3687 1
U.K. 0.5747 0.5371 0.4103 0.1269 0.6296 0.5698 1
Unit Root Test: A perquisite for testing cointegration between stock market returns is that all variables are
nonstationary. If a variable is non-stationary in time then it is said to have a unit root. Augmented Dickey-Fuller
5. Financial integration between BRICS and developed …
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(ADF) test is used to test whether the variables contain a unit root. Table 4 reports the results of ADF unit root
test for log return series of all the stock market indices at level and first difference.
Table 4: Results of the Augmented Dickey – Fuller Unit Root Test
Series
ADF STATISTIC
Level First Difference
BRAZIL -1.891633 -34.69011
RUSSIA -2.087881 -40.97576
INDIA -1.812313 -43.96854
CHINA -1.286150 -47.08226
S. AFRICA -2.161686 -45.23624
U.K. -2.184649 -45.23624
U.S. -0.788606 -52.68429
Note: The critical values for the ADF and PP tests are -3.97, -3.41, and -3.13 at 1%, 5% and 10% level,
respectively.
The results indicate the existence of unit roots at level for log return series of all the indices (i.e. the
null hypothesis cannot be rejected). The ADF test finds no evidence to support the presence of a unit root in first
differences of log return series of the indices. The log returns on indices are stationary at the first difference, and
hence they are integrated in the order one, I(1), which is consistent with results in the literature.
Johansen’s Cointegration Results: In order to gain an insight into the nature of the relationship between the
stock markets, bivariate and multivariate co-integration tests were carried out between the stock markets. The
results of the bivariate tests are presented in Table 5 and the results for multivariate tests are presented in Table
6.
Table 5: Johansen’s Cointegration Result- Bivariate Analysis
BI- VARIATE FULL SAMPLE
Hypothesized No. of
CE(s) Trace Statistic Prob.
Max Eigenvalue
Statistic Prob.
BRAZIL INDIA
None 15.70799* 0.0464 12.09167 0.1072
At most 1 3.616316 0.0572 3.616316 0.0572
Brazil
UK
None 6.825806 0.5980 5.228733 0.7128
At most 1 1.597072 0.2063 1.597072 0.2063
Brazil
US
None 10.49604 0.2445 10.33999 0.1906
At most 1 0.156053 0.6928 0.156053 0.6928
China
UK
None 7.596771 0.5095 5.920675 0.6234
At most 1 1.676096 0.1954 1.676096 0.1954
China
US
None 2.174765 0.9923 1.646302 0.9966
At most 1 0.528463 0.4673 0.528463 0.4673
India
UK
None 9.015823 0.3639 5.728255 0.6483
At most 1 3.287568 0.0698 3.287568 0.0698
S. Africa
UK
None 12.55895 0.1320 7.628808 0.4177
At most 1 4.930138* 0.0264 4.930138* 0.0264
S. Africa
US
None 11.58181 0.1781 10.22583 0.1975
At most 1 1.355983 0.2442 1.355983 0.2442
RUSSIA
SA
None 8.922366 0.3726 4.958077 0.7471
At most 1 3.964288* 0.0465 3.964288* 0.0465
Russia
UK
None 12.21222 0.1470 7.948898 0.3839
At most 1 4.263325* 0.0389 4.263325* 0.0389
Russia
US
None 6.786854 0.6026 6.180071 0.5902
At most 1 0.606783 0.4360 0.606783 0.4360
US
UK
7.971619 0.4685 7.797761 0.3996
0.173858 0.6767 0.173858 0.6767
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Table 6: Johansen’s Cointegration Result- Multivariate Analysis
Hypothesized No.
of CE(s) Trace Statistic Prob.
Max Eigenvalue
Statistic Prob.
Brazil
China
UK
US
None 32.05126 0.6093 18.42289 0.4603
At most 1 13.62837 0.8608 11.28906 0.6185
At most 2 2.339318 0.9890 1.947192 0.9919
At most 3 0.392126 0.5312 0.392126 0.5312
Russia
India
UK
None 19.40951 0.4638 10.12852 0.7325
At most 1 9.280991 0.3400 5.563539 0.6696
At most 2 3.717452 0.0538 3.717452 0.0538
BRAZIL
CHINA
INDIA
RUSSIA
S. AFRICA
None 53.18265 0.4972 31.51115 0.0933
At most 1 21.67150 0.9783 8.383513 0.9976
At most 2 13.28799 0.8780 6.879063 0.9585
At most 3 6.408926 0.6472 3.750270 0.8847
At most 4 2.658656 0.1030 2.658656 0.1030
Russia
UK
US
None 21.18860 0.3460 13.87869 0.3751
At most 1 7.309912 0.5419 6.623709 0.5345
At most 2 0.686203 0.4075 0.686203 0.4075
S Africa
Russia
UK
US
None 30.59253 0.6882 14.73767 0.7686
At most 1 15.85486 0.7225 9.644622 0.7773
At most 2 6.210238 0.6707 5.228689 0.7128
At most 3 0.981549 0.3218 0.981549 0.3218
RUSSIA
S. AFRICA
U.K.
None 18.77414 0.5092 8.709717 0.8551
At most 1 10.06442 0.2758 5.371928 0.6943
At most 2 4.692493* 0.0303 4.692493* 0.0303
RUSSIA
SAFRICA
UK
US
None 30.59253 0.6882 14.73767 0.7686
At most 1 15.85486 0.7225 9.644622 0.7773
At most 2 6.210238 0.6707 5.228689 0.7128
At most 3 0.981549 0.3218 0.981549 0.3218
RUSSIA
S. AFRICA
INDIA
CHINA
None 38.05266 0.2997 22.03991 0.2183
At most 1 16.01276 0.7114 7.803764 0.9153
At most 2 8.208995 0.4433 5.909981 0.6248
At most 3 2.299014 0.1295 2.299014 0.1295
S. AFRICA
UK
INDIA
CHINA
None 35.24593 0.4350 19.95614 0.3442
At most 1 15.28979 0.7610 7.805160 0.9152
At most 2 7.484629 0.5220 5.197482 0.7168
At most 3 2.287147 0.1304 2.287147 0.1304
AFRICA
UK
INDIA
CHINA
None 35.24593 0.4350 19.95614 0.3442
At most 1 15.28979 0.7610 7.805160 0.9152
At most 2 7.484629 0.5220 5.197482 0.7168
At most 3 2.287147 0.1304 2.287147 0.1304
Note: * Significant at the 95 per cent level
The order of the underlying vector autoregression (VAR) model is determined by either the Akaike
(1974) information criterion (AIC) or the Schwarz (1978) Bayesian criterion (SBC). The order of the VAR is
selected by choosing in each case the lowest of the AIC and SBC coefficients, as suggested by Johansen and
Juselius (1990). As far as the specification of the intercepts/trends in the VAR is concerned, the underlying
VARs are assumed to contain unrestricted intercepts and nondeterministic trends. Table 5 depicts the number of
co-integrating vectors (r) for pairs of stock market indices. For each test, the null hypothesis of no co-integration
is compared against the alternative hypothesis of presence of co-integration. The results inform whether there
exists a long-run equilibrium relationship between the stock markets. In the pairwise co-integration test, there is
evidence to support presence of cointegration between stock markets of Brazil and India; South Africa and
U.K.; Russia and South Africa; Russia and U.K. In contrast, there is no evidence to support a long-run
relationship between the stock markets of China and U.K.; Russia and U.S. since the null hypothesis of no co-
integration cannot be rejected. Cointegration results for the multivariate co-integration analysis between the
stock markets suggest the presence of co-integrating vectors between Russia, South Africa and U.K. Overall,
the above results suggest that there exist long-run relationships between the BRICS and developed stock
markets. This is consistent with the findings of the correlation results.
V. SUMMARY AND CONCLUSIONS
This study examines the stock market integration among the stock markets of BRICS and developed
economies (U.S. and U.K.).
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Correlation test is used to study the short-run static linkages between the markets. Johansen’s
Cointegration method is used to study the long-term dynamic linkage between the markets. Correlation test
reveals that stock markets showed signs of co-movement. Overall, correlation test results indicate that there is
integration between the stock markets. In order to get more insight into the relationships between these markets,
Johansen’s cointegration method is applied. There was cointegration only between the stock markets of Brazil
and India; South Africa and U.K.; Russia and South Africa; Russia and U.K. Multivariate tests found integration
between the stock markets of Russia, South Africa and U.K. The results of cointegration are consistent with the
findings of the correlation results.Presence of cointegration between stock markets implies that these markets
simultaneously adjust to new information, thereby eliminating any opportunities for abnormal profits or risk
diversification associated with lagged information processing. There appears therefore, to be no gains to be
derived by investors in developed stock markets from diversifying their investments across the BRICS markets
or vice versa. Results of this study have implications for policy makers in responding to increasing financial
interactions across borders.
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