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INDIAN STOCK MARKET INFLUENCED BY GLOBAL STOCK MARKET- A
STUDY OF SELECT WORLD MAJOR STOCK MARKETS
Jayshree Mandaviya, Assistant Professor
Anand Commerce College, Sardar Patel University, V.V. Nagar
Abstract
The present study is being contemplated with the objective of studying the degree of stock
market integration and degree of influence of Indian stock market by global stock market. In
this study, top 10 major stock exchange is selected as a market capitalization and month-wise
average prices of BSE-Sensex, Nifty, NYSE, NASDAQ, S&P500, TOPIX, FTSE100, HangSeng, SSE
Composite index, DAX, S&P 500and Dow Jones have been selected.. Multiple Correlations and
Regression has been computed for the select stock market indices. Statistical Significance of the
correlation has been tested by applying correlation t-test and regression t- test. The results of
these studies support the view that there is a substantial integration and dependence between
domestic and international financial markets. BSE – Sensex has witnessed greater fluctuation
between domestic and international very high co-efficient of variance compared to other
selected indices. BSE highest correlation was recorded between Sensex and Nasdaq, Topix, Hang
Seng, Dax. NSE highest correlation was recorded between Nifty and Sensex, Topix, Hang Seng,
Key words: Stock Market Integration, Global Stock Markets.
Research Methodology
Research Topic: Indian Stock Market Influenced by Global Stock Market - a Study of Select
World Major Stock Markets
Objectives
• To find out integration of Indian stock market and global stock market
• To find out dependency level of Indian stock market
• To find out proportion change in Indian stock market due to global stock market
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Importance of study
• To understand the level of interdependence among the major stock markets in the
world and its impact on Indian stock market.
• Study of level of correlation between Indian stock market and other major stock
markets.
• To helps investors in planning for international price arbitrage and international
portfolio diversification.
• In order to reduce the portfolio risk, an investor will prefer to invest in the stock markets
which are less correlated with other stock markets.
• Study of global stock market is helpful for the prediction of Indian stock market.
Data type
Secondary data
Monthly wise average stock price is consider
Period of study
The study covers a period from January 2000 to March 2013.
Sources of data
The present study is based on secondary data. Month-wise average prices of select indices have
been collected from concerned stock exchange websites. Apart from this, various journals,
magazines, text books and articles have been referred to get the relevant information.
Category of data
Major stock exchange (top 11 by market capitalization) as at 31 December 2012
SAMZODHANA SAMZODHANA SAMZODHANA SAMZODHANA –––– “Journal of Management Research”“Journal of Management Research”“Journal of Management Research”“Journal of Management Research”
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Rank Stock Exchange Economy Ra
nk Stock Exchange Economy
1 NYSE Euro next United States/
Europe 7
Dow Jones Industrial
Average
United States/
Europe
2 NASDAQ OMX
Group
United States/
Europe 8 Deutsche Börse Germany
3 Tokyo Stock
Exchange Japan 9
Australian Securities
Exchange Australia
4 London Stock
Exchange
United
Kingdom 10
Bombay Stock
Exchange India
5 Hong Kong Stock
Exchange Hong Kong 11
National Stock
Exchange of India India
6 Shanghai Stock
Exchange China
Hypothesis
• Ho: α = 0, β=1.
• A t-test will be applied to α and β, whose hypothesis value are 0 and 1 respectively. The
regression use ordinary lest square estimates of Alpha and Beta.
• If p-value is less than 0.05. H1 is accepted.
Tools
• Microsoft Word for make a report
• Microsoft Excel for Descriptive Statistics
• SPSS for Multi correlation and regression
SAMZODHANA SAMZODHANA SAMZODHANA SAMZODHANA –––– “Journal of Management Research”“Journal of Management Research”“Journal of Management Research”“Journal of Management Research”
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Limitation
• Monthly average price is consider not daily
• Transaction cost is ignore
• Other factor influence is ignore
Assumption
Only major stock market indices price influence Indian stock market indices price other factor
remaining constant.
Analysis Tool
Multiple correlation models
Y.122 Y
2
Y Y Y 12
122
R = r + r - 2( r )( r )( r )
1 - r.
1 2
2
1 2
Multiple Regression Models
Build all of these variables into a single, predictive equation (multiple regression)
Regression model is: y = β1 + β2 x2 + β3 x3 + u
Framework of Analysis
Month-wise average index prices have been chosen. Multiple Correlations has been computed
for the select stock market indices. Statistical Significance of the correlation has been tested by
applying correlation t-test. Correlation has been divided into three levels.
• Correlation below 0.40 is treated as Weak;
• Correlation between 0.40 to 0.70 as moderate;
• Correlation between 0.70 to 1 as strong.
Descriptive statistics i.e., Minimum, Maximum, Mean, Standard Deviation, Coefficient of
Variation, Skewness and Kurtosis have been computed for the select indices.
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DESCRIPTIVE STATISTICS FOR THE SELECT INDICES FOR THE PERIOD FROM 1-1- 2000 TO 31-03-
2013:
Descriptive Statistics
N Minimum Maximum Mean
Std.
Deviation Skewness Kurtosis
NYSE 160 4617.03 10311.61 7246.085 1311.434 0.153 -0.586
NASDAQ 160 832.52 4397.83 1895.986 676.5299 1.38 2.226
TOPIX 144 0.4 5.45 2.199583 1.149778 0.395 -0.325
FTSE 100 160 3567.4 6721.6 5360.388 793.6117 -0.394 -0.853
HANG SENG 160 8634.45 31352.58 17026.83 4897.527 0.224 -0.735
SSE
COMPOSITE 160 1060.74 5954.77 2217.006 923.7715 1.566 3.052
DOW JONES 161 7062.93 14578.54 10887.07 1577.222 0.103 -0.399
DAX 160 2423.87 8067.32 5678.739 1425.288 -0.321 -0.852
S&P 500 160 735.09 1569.19 1212.984 190.1587 -0.278 -0.634
SENSEX 160 2811.6 20509.09 10790.57 6088.869 0.078 -1.62
NIFTY 160 913.85 6138.6 3259.566 1793.964 0.104 -1.591
BSE SENSEX has witnessed greater fluctuations which have been indicated by very high
coefficient of variance followed by HANG SENG index. In the case of US indices, DOW JONES has
shown highest fluctuations and NASDAQ has shown very low fluctuations. Skewness of the
distribution of the entire indices price is positive expect FTSE 100, DAX and S & P SEX. European
index FTSE 100 has lesser fluctuation when compared US indices. Kurtosis in the case of SSE
Composite index is positively very high followed by NASDAQ indicating abnormal peaks in the
distribution of the index prices.
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Finding
Graph Explanation
According to graphical explanation NIFTY, SENSEX, S&P 500, DAX, DOW JONES, SSE Composite,
and Hang Seng are correlated with each other and their trend are positively correlated.
Remaining four indices FTSE 100, TOPIX, NASDAQ and NYSE are perform similarly.
Study of Relationship between BSE – SENSEX with Other Select Indices from 1-1-2000 to 31-
03-2013:
To study the relationship between BSE Sensex and other indices selected for the study, the
following hypothesis has been designed.
Null Hypothesis: there is no significant relationship between sensex and other selected indices.
Alternative Hypothesis: there is a significant relationship between sensex and other selected
indices
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Indices Correlation Level of
correlation p - value Hypothesis accepted
NYSE .699**
Moderate .000 H1: Accepted
NASDAQ .818**
Strong .000 H1: Accepted
TOPIX .749**
Strong .000 H1: Accepted
FTSE 100 .684**
Moderate .000 H1: Accepted
HANG
SENG .946
** Strong .000 H1: Accepted
SSE
COMPOSITE .678
** Moderate .000 H1: Accepted
DOW
JONES .693
** Moderate .000 H1: Accepted
DAX .841**
Strong .000 H1: Accepted
S&P 500 .599**
Moderate .000 H1: Accepted
NIFTY .999**
Strong .000 H1: Accepted
The study of relationship between BSE- SENSEX and other selected indices indicates that, null
hypothesis is rejected and alternative hypothesis is accepted in all the cases. Hence, there is a
significant relationship between SENSEX and other world major indices. In the cases, correlation
is significant at 1% level of significance, indicating strong integration of Indian stock market with
world major stock markets. Though, highest correlation was recorded between SENSEX and
NASDAQ, TOPIX, HANG SENG, DAX and the Moderate correlation was recorded between
SENSEX and NYSE, FTSE 100, SSE Composite, Dow Jones and . From among the US stock market
indices, NIFTY exhibited strong positive correlation with SENSEX; Dow has showed moderate
correlation. NASDAQ and S&P500 exhibited moderate correlation with SENSEX. In the case of
Asian regional stock markets, Hong Kong market (i.e., HANGSENG) and Chinese stock market
(SSE Composite Index) showed strong integration with Indian stock market.
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To Study Indian Indices BSE Influence by World Major Stock Market from 1-1-2000 to 31-03-
2013:
The null hypothesis that α = 0, β =1; will be rejected at 5% confidence interval if p-value
is less than 0.05.
Here r shows relationship between that BSE- SENSEX and world major market.
R2 shows the goodness of fit. Here it shows what percentage of variation in BSE is
brought out by change in world major indices, leaving others is constant for other many factors
influencing Stock market.
Adjusted R2 show that variation is done in BSE- SENSEX only because of major indices
fluctuation. It also shows relationship between differential of BSE- SENSEX and world major
indices.
Standard error shows how much variation is involved in this relationship.
According to our H0: α = 0, β =1
P- Value are shows acceptance level. Hypothesis will be rejected at 5% confidence interval if the
p-value is less than 0.05. The null hypothesis is rejected.
Here hypothesis accepted so say that there is a relationship between Indian stock market and
world stock market.
Regression Statistics
Multiple R 0.999941479
R Square 0.999882962
Adjusted R Square 0.993209273
Standard Error 138.3308244
Observations 160
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Major
Indices Coefficients Standard Error t Stat P-value
Hypothesis
accepted
Intercept 0 #N/A #N/A #N/A
Nyse 0.418467232 0.09200213 4.548451572 1.10724E-05 H1: Accepted
Nasdaq 0.219685895 0.092903981 2.36465536 0.019327019 H1: Accepted
Topix 9.049782376 37.5173425 0.241215976 0.809717143 H0: Accepted
Ftse 100 0.039913798 0.049321498 0.80925761 0.419648785 H0: Accepted
hang seng
-
0.068034285 0.013624151
-
4.993653358 1.62639E-06
H1: Accepted
SSE
Composite 0.124741336 0.030500981 4.089748361 7.02092E-05
H1: Accepted
Dow jones -0.18080007 0.043206169
-
4.184589256 4.84641E-05
H1: Accepted
DAX 0.012808625 0.035152492 0.364373183 0.716092504 H0: Accepted
S&P 500
-
1.026779713 0.846219928
-
1.213372173 0.226894774
H0: Accepted
Nifty 3.415894067 0.035050311 97.45688267 1.5528E-137 H1: Accepted
Interpretation
In India BSE SENSEX hold good. Its hypothesis for alpha and beta are accepted when p-value is
greater than 0.05, beta value is near to “one” and alpha value is near to “zero”.
In BSE SENSEX 99.32% fluctuation made by other major indices. In US stock exchange NYSE and
NASDAQ
Is highly fluctuate BSE, NYSE make a 41.84% and NASDAQ make 21.96% fluctuation in Indian
stock indices in BSE. HANG SENG, DOW JONES and S&P 500 are its beta value is negative so
these indices are negatively influence BSE SENSEX. High variant by TOPIX Tokyo stock exchange
but their standard errors are also being high.
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To Study of Relationship between NSE – NIFTY with Other Select Indices from 1-1-2000 to 31-
03-2013:
To study the relationship between NSE Nifty and other indices selected for the study,
the following hypothesis has been designed.
Null Hypothesis: there is no significant relationship between Nifty and other selected indices.
Alternative Hypothesis: there is a significant relationship between Nifty and other selected
indices
INDICES Correlation Level of
correlation
p - value Hypothesis accepted
NYSE .680**
Moderate .000 H1: Accepted
NASDAQ .304**
Week .000 H1: Accepted
TOPIX .736**
Strong .000 H1: Accepted
FTSE 100 .449**
Moderate .000 H1: Accepted
HANG SENG .912**
Strong .000 H1: Accepted
SSE COMPOSITE .656**
Moderate .000 H1: Accepted
DOW JONES .660**
Moderate .000 H1: Accepted
DAX .650**
Moderate .000 H1: Accepted
S& P 500 .421**
Moderate .000 H1: Accepted
SENSEX .999**
Strong .000 H1: Accepted
The study of relationship between NSE- NIFTY and other selected indices indicates that, null
hypothesis is rejected and alternative hypothesis is accepted in all the cases. Hence, there is a
significant relationship between Nifty and other world major indices. In the cases, correlation is
significant at 1% level of significance, indicating strong integration of Indian stock market with
world major stock markets. Though, highest correlation was recorded between Nifty and
SENSEX, TOPIX, HANG SENG, and the Moderate correlation was recorded between NIFTY and
NYSE, FTSE 100, SSE Composite, Dow Jones, S&P 500 and DAX. Nifty exhibited strong positive
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correlation with SENSEX; Dow has showed moderate correlation. NASDAQ exhibited week
relation with Nifty. In the case of Asian regional stock markets, Hong Kong market (i.e.,
HANGSENG) and Chinese stock market (SSE Composite Index) showed strong integration with
Indian stock market.
To Study Indian Indices NSE Influence by World Major Stock Market from 1-1-2000 to 31-03-
2013:
The null hypothesis that α = 0, β =1; will be rejected at 5% confidence interval if p-value is less
than 0.05. Not only would this if the beta values turns out to be negative, raise question against
relationship between Indian stock market and global major stock market
Here r shows relationship between that NSE- Nifty and world major market.
R2 shows the goodness of fit. Here it shows what percentage of variation in NSE is brought out
by change in world major indices, leaving others is constant for other many factors influencing
Stock market.
Adjusted R2 show that variation is done in NSE- Nifty only because of major indices fluctuation.
It also shows relationship between differential of Nifty and world major indices.
Standard error shows how much variation is involved in this relationship.
According to our H0: α = 0, β =1
P- Value are shows acceptance level. Hypothesis will be rejected at 5% confidence interval if the
p-value is less than 0.05. The null hypothesis is rejected. Here hypothesis accepted so say that
there is a relationship between Indian stock market and world stock market.
Regression Statistics
Multiple R 0.999945251
R Square 0.999890505
Adjusted R Square 0.993217269
Standard Error 40.18018674
Observations 160
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Coefficients Standard
Error
t Stat P-value Hypothesis
accepted
INTERCEPT 0 #N/A #N/A #N/A
NYSE -0.109781878 0.027060784 -4.056862431 7.97E-05 H1: Accepted
NASDAQ -0.045865965 0.027227332 -1.684555969 0.09415
4
H0: Accepted
TOPIX 1.011216048 10.89925487 0.092778457 0.92620
3
H0: Accepted
FTSE 100 -0.013892513 0.014312503 -0.97065573 0.33328
2
H0: Accepted
HANG SENG 0.022365759 0.003863817 5.788514424 4.01E-08 H1: Accepted
SSE
COMPOSITE
-0.042584388 0.008669054 -4.912230202 2.33E-06 H1: Accepted
DOW JONES 0.066926854 0.012084028 5.53845583 1.33E-07 H1: Accepted
DAX 0.003238001 0.010211645 0.317089071 0.75161
7
H0: Accepted
S&P 500 0.058348011 0.246954177 0.236270598 0.81354
5
H0: Accepted
SENSEX 0.288197604 0.002957181 97.45688267 1.6E-137 H1: Accepted
Interpretation
In India NSE Nifty hold good. Its hypothesis for alpha and beta are accepted when p-value is
greater than 0.05, beta value is near to “one” and alpha value is near to “zero”.
In NSE NIFTY 99.32% fluctuation made by other major indices. In Tokyo stock exchange TOPIX is
highly fluctuate NSE, TOPIX make a 1.01 fluctuation in Indian stock indices in NSE. NYSE,
NASDAQ, FTSE 100, and SSE Composite are its beta value is negative so these indices are
negatively influence NSE Nifty. DOW JONES makes a 6.69% fluctuation in NSE index.
SAMZODHANA SAMZODHANA SAMZODHANA SAMZODHANA –––– “Journal of Management Research”“Journal of Management Research”“Journal of Management Research”“Journal of Management Research”
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Conclusions
The results of this study strongly support the view that, there is a substantial integration
between Indian and International financial markets. BSE-SENSEX has witnessed a greater
fluctuation which has been indicated by a very high Co-efficient of variation compared to other
select indices. SENSEX, the Indian bench mark index, has shown strong association with
NASDAQ, TOPIX, HANG SENG, and DAX Index. The study reveals that, there is a moderate
integration of BSE- SENSEX with NYSE, FTSE 100, SSE Composite, and Dow Jones. Indian stock
market exhibited strong positive correlation and perfect price correlation with global stock
markets.
In case of nifty highest correlation was recorded between Nifty and SENSEX, TOPIX, HANG
SENG, and the Moderate correlation was recorded between NIFTY and NYSE, FTSE 100, SSE
Composite, DOW JONES, S&P 500 and DAX . NIFTY exhibited strong positive correlation with
SENSEX; Dow has showed moderate correlation. NASDAQ exhibited week relation with NIFTY.
References
1. Dr Prasanna Chandra, Security analysis and Portfolio Management, Tata McGraw-Hill
Education