Cross-Market Linkages: Analyzing NIFTY50’s Relationship with Major Asian Indices
Dr. Rupesh Kumar Sinha1, M Deepu2, Gareth Keith Dkhar Sawian2, Harin AK2, J Divya Dharshini2, K Angel Stacy2, Kunnath Kailash2
Associate Professor1, MBA, Faculty of Management Studies,
CMS Business School2, Jain (Deemed-to-be university), Bengaluru.
Abstract
The international financial markets are increasingly interconnected, and each stock index affects others based on economic linkages, sentiment, and capital flows. The current study explores the spillover relationship between NIFTY50 and six major global stock indices: KOSPI (South Korea), HK50 (Hong Kong), FTSE (United Kingdom), NIKKEI225 (Japan), SSEC (China), and TSEC50 (Taiwan). These relationships are important for investors, policymakers, and financial economists to understand market integration and risk diversification approaches.
Through statistical methods, the study establishes the significance of these relations with hypothesis testing and variance inflation factor (VIF) test. Findings yield KOSPI, HK50, FTSE, NIKKEI225, and TSEC50 to have a significant relationship with NIFTY50 but not SSEC index. That indicates that Shanghai Composite Index does not rely on the Indian stock market, and that could be due to structural differences, regulatory barriers, or other economic fundamentals of the two economies.
Furthermore, the multicollinearity test also reveals that most of the indices possess a variance inflation factor of below the cut-off value of 10 except for TSEC50, whose VIF is nearly 18, demonstrating too much correlation with NIFTY50. Strong multicollinearity demonstrates that TSEC50 can be prone to distorting regression estimates and model specification must be undertaken carefully in order to make correct inferences.
These findings add to overall stock market integration literature through their provision of precise evidence on the spillover effect between NIFTY50 and a few foreign indices. The findings have implications for diversification of portfolios as investors would consider correlations between these indices when making investment decisions. These findings can also be employed by policymakers in order to observe how developments across the world impact the stability of domestic finance.
Keywords- Stock Market Integration, NIFTY50, Global Indices, Financial Interdependence, Multicollinearity, Hypothesis Testing, Market Linkages, Risk Diversification, International Finance
