Financial Market Integration: Empirical Evidence from India and Select South Asian Countries

This study examines the relation of the stock markets in India with some leading South Asian countries and also endeavours to communicate the impression whether Indian equity market is more proficient than the other south Asian markets as is popularly believed.Integrated financial market is assumed to be of immense significance as it constitutes an important vehicle for promoting domestic savings, investment and economic growth and fostering the necessary condition for a country’s financial sector to emerge as an international financial center. Globalization, technological advancements and financial market integration have aggravated the challenges to emerging economies to grow at an extraordinary pace for promoting domestic savings, foreign capital inflows and economic growth. The study is based exclusively on secondary data obtained from various websites of Asian stock markets including yahoo finance and Bloomberg database. To explore these relationships we have used the daily stock indices from August, 2002 to August, 2011 by applying bivariate and multivariate co-integration tests and the Granger causality tests.The result shows both long-run and short-run association among the selected markets. The investors can reap benefit during short-run rather than in the long-run. It indicates that there are ample opportunities for the investors to broaden the horizons of their investments not only in Indian equity markets and also to the selected South Asian markets to reap the benefits of such diversification with risk reduction.