Asian Journal of Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Efficiency of Capital Markets:A Study with Special Reference to G7 Nations Stock Markets


Affiliations
1 Bharathidasan School of Management, Bharathidasan University, Tiriuchirappalli, India
2 Bharathidasan School of Management, Bharathidasan University, Tiriuchirappalli., India
     

   Subscribe/Renew Journal


This study aims to explore the linkages among G7 nations’ stock market indices, namely, CAC 40, FTSE 100, FTSE MIB, GDAXI, NIKKEI 225, NYSE COMPOSITE and S&P TSX COMPOSITE during the study period from April 2004 to March 2014 by using Co integration Test, Vector Error Correction Model (VECM) and Granger Causality Test. The results of Johansen Co integration Test found that daily returns of G7 nations stock market indices were Co Integrated, The co efficient value of Vector Error Correction Model implied that the FTSE MIB, GADAXI and S&P Tesx Composite did not witness short term relationship with CAC 40 INDEX, FTSE 100, NIKKEI 225 and NYSE COMPOSITE INDEX, rest of the indices recorded short run relationship. The results of Granger Causality Test exhibited bidirectional relationship between following indices - S&P TSX COMPOSITE and CAC 40 INDEX, S&P TSX COMPOSITE and FTSE MIB, S&P TSX COMPOSITE and NYSE COMPOSITE INDEX, CAC 40 and FTSE MIB. Unidirectional causal relationship was found between FTSE 100 and GDAXI, FTSE MIB and NIKKEI 225, NIKKEI 225 and S&P TSX COMPOSITE. Finally the study concluded that G7 nations’ stock market indices recorded both Short and Long run linkages during the study period, hence international investors G7 nations' investors could go for both long run and short run diversification for reducing their investment risk in future, if investors diversify their investment in to listed companies of G7 nations' stock market indices.

Keywords

G7 Indices, Integration, Garch (1, 1) Model, Johansen Co Integration Test, Vector Error Correction Model And Granger Causality Test.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Alessandra Bonfiglioli (2005), “Explaining co-movements between stock markets: The case of US and Germany”, Journal of International Money and Finance, No. 24, pp. 1299 – 1316.

  • Burcu Kiran (2011), “Fractional Co integration Relationship between Oil Prices and Stock Markets: An Empirical Analysis From G7 Countries”, PRAGUE ECONOMIC PAPERS, No. 2, pp. 179 – 189.

  • Colm Kearney and Brian M. Lucey (2004), “International equity market integration: Theory, evidence and implications”, International Review of Financial Analysis, Vol. 13, pp - 571– 583.

  • Dasgupta, R. (2014). “Integration and dynamic linkages of the Indian stock market with BRIC – An Empirical Study” Asian Economic and Financial Review, Vol. 4, No. 6, pp. 715–731.

  • Guidi, F. and Ugur, M. (2014). An analysis of South-Eastern European stock markets: evidence on co-integration and portfolio diversification benefits. Journal of International Financial Markets, Institutions and Money, Vol. 30, pp. 119–136.

  • Heikki Lehkonen and Kari Heimonen (2014), “Timescaledependent stock market comovement: BRICs vs. developed markets”, Journal of Empirical Finance, Vol. 28, pp - 90–103.

  • Jagroop Kaur (2012), “Are the Stocks Exchanges interlinked: a Case of Islamic Countries and US”, BIZ and Bytes- A Quarterly Journal of Management and Technology, Vol.1, No.4, pp. 128 – 137.

  • Kabihassan M (2001), “Short run and long run dynamic linkages among International stock Markets”, International Review of Economics and Finance, Vol.5, No. 4, pp. 387-405.

  • Kui Fan, Zudi Lu and Shouyang Wang (2009), “Dynamic Linkages between the China and International Stock Markets”, Asia-Pacific Finan Markets Vol.16, pp.211–230.

  • Lehkonen, H. (2014). “Timescale-dependent stock market co movement: BRICs vs. Developed Markets” Journal of Empirical Finance, Vol. 28, pp. 90–103.

  • Małgorzata Doman and Ryszard Doman (2013), “Dynamic linkages between stock markets: the Effects of Crises and Globalization”, Port Econ J, Vol. 12, pp. 87–112.

  • Rajkumar, G. S. (2015). “Linkages between India and three Asean stock markets: A co-integration approach” Journal of Commerce and Accounting Research, 4(1).

  • Searat Ali and Babar Zaheer Butt (2011), “Co movement between Emerging and Developed Stock Markets: An Investigation through Co integration Analysis”, World Applied Sciences Journal, Vol. 12, No. 4, pp. 395-403.

  • Tahai A and Robert W (2004), “An Examination of Financial Integration for Group of Seven (G7) Industrialized Countries using an I(2) Co integration Model”, Applied Financial Economics, No. 14, pp. 327 – 335.

  • Walid M. A. Ahmed (2008), “Co integration and Dynamic linkages of International Stock Markets: An Emerging Market Perspective”, Electronic copy available at http://mpra.ub.unimuenchen.de/26986/


Abstract Views: 397

PDF Views: 0




  • Efficiency of Capital Markets:A Study with Special Reference to G7 Nations Stock Markets

Abstract Views: 397  |  PDF Views: 0

Authors

M. Babu
Bharathidasan School of Management, Bharathidasan University, Tiriuchirappalli, India
C. Hariharan
Bharathidasan School of Management, Bharathidasan University, Tiriuchirappalli., India

Abstract


This study aims to explore the linkages among G7 nations’ stock market indices, namely, CAC 40, FTSE 100, FTSE MIB, GDAXI, NIKKEI 225, NYSE COMPOSITE and S&P TSX COMPOSITE during the study period from April 2004 to March 2014 by using Co integration Test, Vector Error Correction Model (VECM) and Granger Causality Test. The results of Johansen Co integration Test found that daily returns of G7 nations stock market indices were Co Integrated, The co efficient value of Vector Error Correction Model implied that the FTSE MIB, GADAXI and S&P Tesx Composite did not witness short term relationship with CAC 40 INDEX, FTSE 100, NIKKEI 225 and NYSE COMPOSITE INDEX, rest of the indices recorded short run relationship. The results of Granger Causality Test exhibited bidirectional relationship between following indices - S&P TSX COMPOSITE and CAC 40 INDEX, S&P TSX COMPOSITE and FTSE MIB, S&P TSX COMPOSITE and NYSE COMPOSITE INDEX, CAC 40 and FTSE MIB. Unidirectional causal relationship was found between FTSE 100 and GDAXI, FTSE MIB and NIKKEI 225, NIKKEI 225 and S&P TSX COMPOSITE. Finally the study concluded that G7 nations’ stock market indices recorded both Short and Long run linkages during the study period, hence international investors G7 nations' investors could go for both long run and short run diversification for reducing their investment risk in future, if investors diversify their investment in to listed companies of G7 nations' stock market indices.

Keywords


G7 Indices, Integration, Garch (1, 1) Model, Johansen Co Integration Test, Vector Error Correction Model And Granger Causality Test.

References