پویایی های همبستگی در بازارهای سهام: شواهد از هند

This study is aimed at understanding the correlation dynamics of the equity markets from a developing country perspective using daily data from July 1997 to August 2006. A simple unconditional correlation estimate and dynamic time varying correlation estimate from a DCC-MVGARCH of Engle and Sheppard (2001) are derived for S&P CNX Nifty and other 10 world indices that includes four developed and six Asian country indices. The results show low correlation across S&P CNX Nifty with both Asian and developed nations. In addition a Logistic Smooth Transition Regression (LSTR) model is implemented and finds that the S&P CNX Nifty index is moving towards a better integration with other world markets but not at a very noteworthy phase. The low correlation provides space for the global funds to diversify risk in Indian markets.

Equity market integration has a very significant role to play in shaping the fortunes of any developing nation. The foreseeable benefits apply not only to the realm of financial markets but also for economic growth and development itself: first, in a fully integrated capital market all risk factors trade at the same price and the law of one price will prevail. This should have a positive effect on the functioning of financial markets and indirectly on the performance of investments. Second, greater integration would mean a free or relatively freer access to foreign financial markets. This provides an opportunity to many firms a broader source for raising capital. Third, more internationally diversified stock and bond portfolios should as a consequence shift the frontier of efficient portfolios upwards and therefore for each given risk the average portfolio return should increase (Schroder, 2003). It would create enormous opportunities for domestic and international investors to diversify their portfolios across the globe. Fourth, equity market integration is of considerable significance to issuers and investors as it plays a critical role in channeling funds. Stock markets tend to be very efficient in the allocation of capital to its highest-value users. Such integrated markets could also help to increase savings and investment, which are essential for economic development. An equity market, by allowing diversification across a variety of assets, helps reduce the risk the investors must bear, thus reducing the cost of capital, which in turn spurs investment and economic growth. A high degree of integration is not without its limitations. However one constant argument is that these limitations of integration do not have an impact until very high rates of integration is achieved. Issues such as vulnerability to foreign price fluctuations, drain of domestic funds and the argument that excessive integration could be self-defeating are valid only when the degree of correlation between markets is very high. Consequently the obvious advantages are what most emerging economies focus on in their drive towards greater integration. In the literature market integration has been measured broadly through three ways (Kearney and Lucey, 2004). First, relating any equity market with other world markets through the international CAPM. It typically assumes that all the world's capital markets are perfectly integrated and therefore the asset risk can be related purely with the covariance of the local returns with the world market portfolio. Second, number of studies has examined the integration through increasing correlations and cointegration in their returns over time. Third, time varying estimates rectifies the weakness in the above-mentioned methods that misses the important element of time variation in equity risk premia. This study is an attempt to analyze the correlation structure and to test the equity market integration between the Indian equity market with some of the major world markets including the Asian markets. The main contribution of this study over some of the previous studies is in twofold. First, this study uses DCC-MVGARCH model to estimate the dynamic correlation among the equity market of a developing country (India) with the world and Asian markets along with simple unconditional correlation. Second, a Logistic Smooth Transition Regression (LSTR) method is used to estimate not only the extent of correlation between returns but also the pace of integration. The advantage of logistic trend models is that they can indicate the speed at which markets are getting integrated, information that cannot be attained through conventional correlation analysis. This paper is organized as follows. Section 2 gives a brief overview of the literature on equity market integration. Section 3 narrates the methodology to estimate the unconditional correlation, conditional correlation through DCC-MVGARCH model and explains the Logistic Smooth Transition Regression. Section 4 discusses the results and the final section concludes with a summary.

This study analyzed the correlation dynamics between Indian equity market with Asian and other developed markets. For India we considered S&P CNX Nifty index as representative index and used BSE 100 index for robustness check. Daily data for the period from 1st July 1997 to 18th August 2006 are considered for the study with 10 other world indices. Two methods namely unconditional correlation and conditional time varying correlation with DCC-MVGARCH model are used to extract the correlation across these markets. Both the measures display a low level of correlation across these markets particularly that of S&P CNX Nifty index with six Asian markets and S&P CNX Nifty index with four developed markets separately. The average correlation for these markets is less than 30% with only the four developed markets show a high correlation between them with more than 60%. Further a smooth transition model is applied to understand regime shifts in the correlation series as well as the pace of market integration. The results support a significant regime shift in the year 2000 and after that the pace of integration across S&P CNX Nifty index with Asian markets and other developed markets has showed a positive movement but not at very rapid pace. Further the study also tested the smooth transition model with capital flow as a transition variable. The results exhibit that the capital flows at a particular level have a significant impact on the increased market integration between S&P CNX Nifty and Asian markets. This is in support of the argument that an emerging market gives space for diversification for global funds and the high volatility in recent years faced by the Indian equity markets can be attributed to this fact.