Analyzing asian stock movements with regard to the US markets at various frequencies to decouple contagion and fundamental drivers

Abstract

During the last decade, the Indian stock markets have seen tremendous integration with the global markets. With the opening up of the markets for foreign funds, the influences of the global markets on the Indian markets in general and the US markets influence in particular have taken center stage. In the project, we attempt to understand the influence of the US markets on the Indian markets and to see if the popular perceptions on the influence are true. We also attempted an analysis of the Indian market in comparison to a similar analysis against some of the chosen Asian market indices. This helped us understand the Indian markets in the Asian context. The analysis was carried out from publically available stock information and correlations were the chosen mode of analysis. The findings of the analysis were the following: a. Indian markets are reasonably free from any correlation to the US markets in the short term. b. In the long term, the Indian markets are increasingly getting aligned to the global markets. c. Within the Asian markets, Indian markets are integrating with some of the active Asian indices to react similarly to prompts from the US market moves. d. The changes in the correlations and variations have been moving steadily in most cases towards more global values during the past decade. Today the Indian market is more global than ever. The findings indicate that there still exists a strong possibility for the global investor to de-risk their positions in the US equity market by investing in the Indian market in the short term. But in the long term, the Indian markets are not aviable hedge against movements in the US markets.