Cross country co-movement in equity markets after the US financial crisis: India and major economic giants

Singh, Amanjot and Singh, M 2016, Cross country co-movement in equity markets after the US financial crisis: India and major economic giants, Journal of Indian Business Research, vol. 8, no. 2, pp. 98-121, doi: 10.1108/JIBR-08-2015-0089.

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Title Cross country co-movement in equity markets after the US financial crisis: India and major economic giants
Author(s) Singh, AmanjotORCID iD for Singh, Amanjot orcid.org/0000-0003-3575-4382
Singh, M
Journal name Journal of Indian Business Research
Volume number 8
Issue number 2
Start page 98
End page 121
Total pages 24
Publisher Emerald Publishing Group
Place of publication Bingley, Eng.
Publication date 2016
ISSN 1755-4195
1755-4209
Keyword(s) India
GARCH
Risk
Co-movement
Summary Purpose This paper aims to attempt to capture the co-movement of the Indian equity market with some of the major economic giants such as the USA, Europe, Japan and China after the occurrence of global financial crisis in a multivariate framework. Apart from these cross-country co-movements, the study also captures an intertemporal risk-return relationship in the Indian equity market, considering the covariance of the Indian equity market with the other countries as well.Design/methodology/approachTo account for dynamic correlation coefficients and risk-return dynamics, vector autoregressive (1) dynamic conditional correlation–asymmetric generalized autoregressive conditional heteroskedastic model in a multivariate framework and exponential generalized autoregressive conditional heteroskedastic model in mean with covariances as explanatory variables are used. For an in-depth analysis, Markov regime switching model and optimal hedging ratios and weights are also computed. The span of data ranges from August 10, 2010 to August 7, 2015, especially after the global financial crisis.FindingsThe Indian equity market is not completely decoupled from mature markets as well as emerging market (China), but the time-varying correlation coefficients are on a downward spree after the global financial crisis, except for the US market. The Indian and Chinese equity markets witness a highest level of correlation with each other, followed by the European, US and Japanese markets. Both the optimal portfolio hedge ratios and portfolio weights with two asset classes point out toward portfolio risk minimization through the combination of the Indian and US equity market stocks from a US investor viewpoint. A negative co-movement between the Indian and US market increases the conditional expected returns in the Indian equity market. There is an insignificant but a negative relationship between the expected risk and returns.Practical implicationsThe study provides an insight to the international as well as domestic investors and supports the construction of cross-country portfolios and risk management especially after the occurrence of global financial crisis.Originality/valueThe present study contributes to the literature in three senses. First, the period relates to the events after the global financial crisis (2007-2009). Second, the study examines the co-movement of the Indian equity market with four major economic giants such as the USA, Europe, Japan and China in a multivariate framework. These economic giants are excessively following the easy money policies aftermath the financial crisis so as to wriggle out of deflationary phases. Finally, the study captures risk-return relationship in the Indian equity market, considering its covariance with the international markets.
Language eng
DOI 10.1108/JIBR-08-2015-0089
Indigenous content off
Field of Research 1502 Banking, Finance and Investment
1503 Business and Management
1505 Marketing
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Persistent URL http://hdl.handle.net/10536/DRO/DU:30150402

Document type: Journal Article
Collections: Faculty of Business and Law
Department of Finance
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