INDIAN STOCK MARKET INFLUENCED BY GLOBAL STOCK … · INDIAN STOCK MARKET INFLUENCED BY GLOBAL STOCK MARKET- A ... average prices of BSE-Sensex, Nifty, NYSE, NASDAQ, S&P500, TOPIX,

SAMZODHANA SAMZODHANA SAMZODHANA SAMZODHANA –––– “Journal of Management Research”“Journal of Management Research”“Journal of Management Research”“Journal of Management Research”

Vol 2 Vol 2 Vol 2 Vol 2 Issue Issue Issue Issue 1111, March 2014, March 2014, March 2014, March 2014

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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




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




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




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.




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.




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




Indices Correlation Level of

correlation p - value Hypothesis accepted

NYSE .699**

Moderate .000 H1: Accepted

NASDAQ .818**

Strong .000 H1: Accepted

TOPIX .749**


FTSE 100 .684**


HANG

SENG .946

** Strong .000 H1: Accepted

SSE

COMPOSITE .678

** Moderate .000 H1: Accepted

DOW

JONES .693

** Moderate .000 H1: Accepted

DAX .841**


S&P 500 .599**


NIFTY .999**


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.




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




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.




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**


NASDAQ .304**

Week .000 H1: Accepted

TOPIX .736**


FTSE 100 .449**


HANG SENG .912**


SSE COMPOSITE .656**


DOW JONES .660**


DAX .650**


S& P 500 .421**


SENSEX .999**


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




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




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.




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

Documents

INDIAN STOCK MARKET INFLUENCED BY GLOBAL STOCK … · INDIAN STOCK MARKET INFLUENCED BY GLOBAL STOCK MARKET- A ... average prices of BSE-Sensex, Nifty, NYSE, NASDAQ, S&P500, TOPIX,