Analysis of stock market linkages: Chinese, Indian and major markets

Abstract

This study examines the linkages of the two leading emerging markets i.e. Chinese and Indian market with other developed markets. Using daily data from January 2000 to December 2008, we examine the stock market indices of China, India, United States, United Kingdom, Japan and Hong Kong. We model the linkages among these stock markets by using a simple correlation test, Granger causality test and co integration test using error correction model. We found that Chinese and Indian markets are correlated with all four developed markets under study. Both markets have at least had unilateral causality with all four developed markets. The empirical results suggest that the benefits of any short-term diversification, or speculative activities, are limited between them.