COURSE PROJECT
MTH517 – TIME SERIES ANALYSIS
Study of Long Run relationships and Interdependence between
stock markets of US, UK, Japan and India
Submitted to:
AMIT MITRA, PhD
Ankit Palliwal, Y6075
Lokesh Pathairia, Y6229
Mandala Rohan, Y6239
Prabhat Kumar, Y6323
Shrey Sahay, Y6411
Introduction
In the recent decade, markets, businesses, regions, and continents have become more
interdependent upon one another. The process of globalization and Economic integration has
entailed large cross-border capital flows and resulted in stronger real economic linkages between
emerging and developed market economies. Greater real and financial integration may imply
higher synchronization between developed and emerging stock markets.
The growing international integration of financial markets has prompted several recent empirical
studies to examine the mechanism through which stock market movements are transmitted
around the world. These studies evaluate how stock returns in one national stock market
influence those of another stock market. This academic exercise is aimed at studying whether
there exists a long run relationship between the stock market indexes of the developed and
emerging market economies. The leading Stock Market Index of India is studied for the
existence of long run relationship with Stock Market Indexes of US (DJIA), UK (FTSE 100) and
Japan (Nikkei 225). Also, this exercise shall examine the extent to which the movements in the
Indian stock market can be explained by the shocks in the three major stock markets.
Review of Literature
The process of financial liberalization and integration in developing countries has gained much
momentum after the works of McKinnon (1973) and Shaw (1973). The authors have been
advocating that Financial Liberalization is essential for both financial development and
economic development. According to Das (1993), the process of financial liberalization has
brought the capital markets...