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Portfolio Organizer Magazine:
Sensex, S&P 500 and Nikkei 225 : Searching for Nexus
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International financial market integration has led to diversification of risks and generating better returns. This article statistically argues a strong correlation between Sensex, S&P 500 and Nikkei 225.

 
 
 

Financial markets have become increasingly global in the recent years. The Indian stock markets have become sensitive to the international events and news relating to economy and politics. London blast on July 7, 2005, had immediate repercussions on the Indian bourses. It nosedived on the next trading day. The growing relationship between the financial markets of different countries whether good or bad is attracting greater attentions.

The growing link among the financial markets have genesis in the increased globalization of investment in search of greener pastures and the opportunity to diversify risk internationally. This phenomenon started in the 1980s and 1990s in the developing countries and the financial markets of those countries increasingly integrated with each other in the recent years. Many countries dismantled the trade restrictions and liberalized their financial markets that facilitated substantial crossborder movement of funds due to foreign direct investment and portfolio investment.

India, too, following the recommendations of the Narasimham Committee Report on the Financial System, in September 1992, integrated itself with global financial markets by granting permission to Foreign Institutional Investors (FIIs) such as Pension Funds, Mutual Funds, Investment Trusts, Asset Management Company, etc., to enter Indian capital markets. It has also made provisions for the domestic companies to raise the capital from abroad through Global Depository Receipts (GDRs) and American Depository Receipts (ADRs).

 
 
 

Portfolio Organizer Magazine, Financial Markets, Portfolio Investment, Foreign Direct Investment, FDI, Foreign Institutional Investors, FIIs, Global Depository Receipts, GDRs, Asset Management Companies, Emerging Markets, Indian Investors, Oil and Natural Gas Corporation, ONGC, Bharat Heavy Electrical Limited, BHEL, Accounting Standards, Indian Capital Markets.