Market Integration and Efficiency of Indian Stock Markets: A Study of NSE

The study tries to explore the dynamics of comovement of stock markets of USA ,Brazil, Mexico, China and India during the period from January, 1996 to July, 2007 using daily closing price data. It attempts to analyze the speed of adjustment coefficients using daily, weekly and monthly data. It also tries to examine the efficiency of the stock market as a result of initiatives and regulatory measures taken by NSE and SEBI respectively. The long-term relationships among the markets are analyzed using the Johansen and Juselius multivariate cointegration approach. Short-run dynamics are captured through vector error correction models. The analysis reveals that there is an evidence of cointegration among the markets demonstrating that stock prices in the countries studied here share a common trend. The results reveal that the speed of adjustment of Indian stock market is higher than other stock markets of the world. The analysis of speed of adjustment coefficient reveals that there are significant underreaction and overreaction alongwith full adjustment are observed at both shorter as well as longer differencing intervals during first period i.e. 1996-2001 using daily data while the second period i.e. 2002-2007 indicates significant overreactions with higher speed of adjustment coefficient. The results of event methodology reveal that the stock market become efficient at information processing in recent times with regard to few regulatory measures taken by SEBI. JEL Classification: G14, C32