Modeling the influence of world stock markets on Indian NSE index

Abstract

This paper experimentally explore the effect other major stock markets of the world namely London stock exchange, NYSE composite, Australia All ordinates on India’s National Stock NSE. The processes of opening of the opening of markets of various developing countries during 80’s and 90’s have resulted in flow of funds or investments from various developed countries. Due to this fact stock market becomes a major monetary activity for traders to make profit from it. There is a continuous or progressive linkage between up- and-coming and developed markets of the world. Due to greater degree of openness and developed markets in different time zone movements of information from them has a substantial effect on our domestic market. India’s market is no exclusion to it. Due to the increase pace of globalization stock markets have somewhat becomes inter related to each other. Understanding of this inter relation and linkage will help us in forecasting of the market before it opens, since there is a time lag between their closing and our opening time. Due to this time lag stock traders in India see to the closing price of London stock exchange, NYSE composite, Australia All ordinates for pricing of stocks before the opening bell of our stock market.

This paper empirically studies the relationship between the major stock markets of the world (London stock exchange, NYSE composite, Australia All ordinates) and India’s NSE index. Various econometric trials from correlation to simple regression to multiple regressions are performed in our analysis. Results obtained shows us that there is a substantial relationship or linkages or interdependence between London stock exchange, NYSE composite, Australia All ordinates and India’s NSE indices during the study period taken. Actually the fundamentals of these indices taken are different from each other.

Subject Classification:

• 68N01

Keywords:

• Stock Market
• Linear Regression
• Correlation
• Forecasting