The structure and price efficiency of an emerging market

Abstract

This paper examines market structure and efficiency of price transmittals in the two national stock exchanges of India: The Bombay Stock Exchange and the National Stock Exchange. Price movements in a large number of important stocks in both markets are considered. The framework used is the Johansen-Juselius multivariate cointegration technique. It is discovered that price movements within each market are cointegrated. Short-run ECM analysis shows that no stock in any market is exogenous, thus indicating that there is considerable feedback in short-run price movements from each stock. Some short-run price movements are stabilizing. The Bombay Stock Exchange and National Stock Exchange appear to be reasonably efficient markets. © Emerald Backfiles 2007