Financial Market Integration in India: A Cointegration Approach

During the last decade, significant progress was achieved in terms of policy and institutional reforms in the financial sector in India. A question that needs to be addressed is: how far have these initiatives resulted in narrowing the inter-market divergences and achieved a reasonable degree of market integration? This paper examines this issue empirically and attempts to provide some evidence on market integration in India. It is found that while the reform process has helped in removing institutional bottlenecks to the free flow of capital across various segments of the financial market, this has not yet been translated into complete integration among them.