Causality relationship between Indian NSE Nifty sectoral indices and Asian emerging stock markets: An empirical study

Abstract

Due to the integration of the world markets, the potentialities of international diversification opportunity are declining. Today the international portfolio investors are continue to wonder to search for less correlated markets to gain better growth oriented returns. The integration of world markets has diverted the investment strategy of the investors at sector wise diversification. This study examines the correlated behaviour of the Eleven Nifty sectoral indices with Nine Asian Emerging Stock markets. The Correlation and the Granger Causality Test has been used for the sample data period ranging from 1st of January 2009 to 31st of December 2018. The findings of the study indicated that in most of the instances there is a high degree of positive correlation within the Nifty sectoral indices and Nifty sectoral indices with Asian Emerging markets. Further from the causality test, we have found contractory result of having Unidirectional, Bi-directional and no causality relationship between the markets. This implies that the diversification opportunities in across the Nifty sectoral indices are not completely vanished but declining over a period of years due to increase in level of correlation.