Global Financial Crisis and Stock Market Integration: A Study on the Impact of Global Financial Crisis on the Level of Financial Integration between the US and Indian Stock Markets

Gangadharan, Srinivasa Rao; Yoonus, C.A.

doi:10.1177/2319510x1200800203

Cited by 7 publications

(6 citation statements)

References 41 publications

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“…They explore the dynamic relationship between the two indices using Johansen co-integration and the vector auto regression (VAR) model. All four periods (Gangadharan and Yoonus, 2012) found no link. The Indian stock market returns show a lot of US–India feedback, but the US stock market returns show a little reaction.…”

Section: Literature Reviewmentioning

confidence: 94%

Return and volatility spillover between India and leading Asian and global equity markets: an empirical analysis

Mishra

Agrawal

Patwa

2022

JEFAS

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PurposeThe study uses the multivariate GARCH-BEKK model (which was first proposed by Baba et al. (1990) and then further developed by Engle and Kroner (1995)) to examine the return and volatility spillover between India and four leading Asian (namely, China, Japan, Singapore and Hong Kong) and two global (namely, the United Kingdom and the United States) equity markets.Design/methodology/approachThe study employs a multivariate GARCH-BEKK model to quantify return correlation and volatility transmission across the pre- and post-2008 global financial crisis periods (apart from other conventional time series modelling like cointegration, Granger causality using vector error correction model (VECM)).FindingsThe results show a tendency of the Indian stock market index to move along with the US and Hong Kong market indices. The decrease in the value of the co-integration coefficient during the recession was explained by reduced investor confidence in developing countries. The result further shows a clear distinction in terms of volatility spillover between the Asian market vis-a-vis US and UK markets. Volatility transmission from India to Asian markets was found to be significantly higher as compared to the US and UK. So also, the study’s results show a puzzling result giving us comparable co-integration ranks for phase 2 (expansion) and phase 3 (slow-down) of the business cycle in most cases.Research limitations/implicationsIn Granger causality testing, the results were unable to ascertain the difference between phase 2 (expansion) and phase 3 (slowdown). However, the multivariate GARCH (MGARCH)-BEKK model showed a clear reduction in volatility transmission to NIFTY50 (is the flagship index on the National Stock Exchange of India Ltd. (NSE)) as India entered slow-down. This shows that the Indian economy does go through different business cycles, and the changes in parameters hence prove hypothesis 3 to be true with respect to volatility transmission to India from International markets.Originality/valueThe results show that for all countries, the volatility transmitted to India increases significantly going from phase 1 (recession) to phase 2 (expansion) and reduces again once the countries enter slow-down in phase 3 (slowdown). This shows that during expansion shocks and impulses in international markets affect the Indian markets significantly, supporting the increase in co-integration in phase 2 (expansion). During expansion, developing markets like India become profitable for investors, due to the high growth rate when compared to developed countries. This implies that a significant amount of capital enters Indian markets, which is susceptible to the volatility of international markets. The volatility transmission from India to the US and UK was insignificant in phase 1 (recession and recovery) and phase 3 (slow-down) showing a weak linkage between the markets during volatile time periods.

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Section: Literature Reviewmentioning

confidence: 94%

Return and volatility spillover between India and leading Asian and global equity markets: an empirical analysis

Mishra

Agrawal

Patwa

2022

JEFAS

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“…Additionally, Kenourgios et al (2016) found the Islamic equities and bonds provide a hedge against risk and instability during the crisis period. Other findings uncover that the GFC exert a negative impact on Pakistani and Indian markets (Ali & Afzal, 2012), on the level of integration between the US and Indian markets (Gangadharan & Yoonus, 2012).…”

Section: Review Of Literaturementioning

confidence: 99%

The Effects of Life Expectancy and Financial Crisis on the Stock Market Development in Africa

Umar

Nayan

2019

Global Business Review

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The African stock market remains underdeveloped despite the increased number of stock exchanges in the region characterized by low market capitalization, volume and illiquidity. The efforts of the previous policies to promote stock market development and restore investors’ confidence in the region did not yield a positive outcome, as they are yet to meet the rising demand for capital by domestic firms. This article investigates the effects of life expectancy and financial crisis on the stock market development in Africa, using the pooled mean group (PMG) model for the sample period of 1996–2016. The findings reveal a positive and statistically significant long-run relationship between the life expectancy and stock market development. Furthermore, the financial crisis adversely affects the stock market development with an attendant decrease in investment. There is a need for policies that address infant mortality, encourage long-term investment and protect the African stock market against an adverse reaction of the financial crisis.

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“…Numerous studies have tried to capture the linkages between the international financial markets comprising equity, debt and foreign exchange markets. For instance, Ismail and Rahman (2009), Diebold and Yilmaz (2009) and Gangadharan and Yoonus (2012) captured the linkages existing between the international equity markets. There are some studies that have also tried to account for the linkages existing between the international bond markets, like Yang (2005).…”

Section: Literature Reviewmentioning

confidence: 99%

How linkages fuel dependent economic policy initiatives

Singh

2017

IJLMA

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Purpose With the globalization and liberalization in terms of increasing financial flows across the countries, the policy makers around the world are not independent in the context of monetary and fiscal policy initiatives. In this regard, this paper aims to attempt to quantify and capture long run, short run as well as time-varying linkages among the two financial stress indices, namely, Kansas City Financial Stress Index (KCFSI) and Indian Financial Stress Index (IFSI) across the monthly period (2004 to 2014). Design/methodology/approach Owing to the non-existence of a standardized financial stress index with regards to the Indian financial system, the study has developed an index/stress indicator using principal component analysis. Furthermore, to comprehend the linkages, the study uses bivariate Johansen cointegration model, vector error correction model, impulse response functions (IRF), variance decomposition analysis (VDA), Toda-Yamamoto’s Granger causality test and, finally, bivariate generalized autoregressive conditional heteroskedastic (BVGARCH) (1,1) model under constant conditional correlation (CCC) framework. Findings The results report a stochastic trend among the two indices wherein the US financial system acts as a source of a shock causing disequilibrium in the long run co-movement. About 40 per cent of the adjustments take place in one month and rest in the coming months. Both the IRF and VDA report a greater degree impact of the US financial stress on the Indian financial system. Moreover, there is a uni-directional short run causality running from the stress in the US financial system to the Indian financial stress. Furthermore, the co-movement between the US and Indian financial stress reached to its maximum significant level during the sub-prime crisis even confirmed by the Markov switching model results. Practical implications Overall, the results provide an insight to the financial market investors both domestic as well as international in their act of risk management. The financial stress prevailing in an economy further has an impact on different economic factors like foreign exchange rates, interest rates, yield curves, equity market returns and volatility. So, the empirical results support strong implications for the Indian policy makers as well as investors in the Indian financial markets. Originality/value The present study contributes to the literature in three senses. First, the study considers indices reflecting financial stress in the Indian as well as US financial system. Second, the study captures long run as well as short run linkages among the financial stress indices relating to a developed and an emerging market. Finally, the study uses CCC-BVGARCH (1,1) model to account for the time-varying co-movement among the financial stress indices. This helps in comprehending time-varying nature of the co-movement of the stress in the financial system prevalent in the respective markets.

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Global Financial Crisis and Stock Market Integration: A Study on the Impact of Global Financial Crisis on the Level of Financial Integration between the US and Indian Stock Markets

Cited by 7 publications

References 41 publications

Return and volatility spillover between India and leading Asian and global equity markets: an empirical analysis

Return and volatility spillover between India and leading Asian and global equity markets: an empirical analysis

The Effects of Life Expectancy and Financial Crisis on the Stock Market Development in Africa

How linkages fuel dependent economic policy initiatives

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