FINANCIAL MARKETS: Co-

Movement of Emerging and

Developed Market Indices
Group 4
Deepu R Unnithan (21PGDM00B009)
Harsh Bachhil (21PGDM00B014)
Prachi Mishra (21PGDM00B017)
Priyam Kumar(21PGDM00B019)
Introduction
->Integration is the buzzword
Factors attributing to it are :-
1. increased capital mobility
2. increased portfolio diversification
3. reliance of nations on the savings of other
nations
4. leverage preference shift of companies from
debt to equity finance
• These factors cause co-movements among global
stock markets, which can be tracked based on
the correlation coefficients.
• These coefficients keep on varying depending on
the level of financial integration.
• Aim- To examine the recent correlation structure
amongst stock markets.
• The markets included in this study are 7 in total,
divided equally between emerging and
developed markets.
EMERGING DEVELOPED
INDIA GERMANY
TAIWAN JAPAN
BRAZIL USA
Analysis of Daily Index Returns – Emerging
Countries
Country Mean return Standard Mean /

Deviation Standard

Deviation

Emerging Category

INDIA (0.001353488) 0.009415554 (0.143750241)

TAIWAN (0.000092505) 0.007520137 (0.012301086)

BRAZIL 0.000543899 0.016696834 0.032574984

Developed category

USA 0.000367894 0.010007924 0.036760286

JAPAN (0.000058892) 0.00908773 (0.006480487)

GERMANY (0.000537832) 0.007892943 (0.06814086)

Analysis of Daily Index Returns –
Developed Countries
Country Mean return Standard Mean /

Deviation Standard

Deviation

Emerging Category

INDIA 0.008314545 0.050335749 0.165181707

TAIWAN 0.007864278 0.038562828 0.20393416

BRAZIL 0.011295916 0.068875144 0.164005702

Developed category

USA 0.012803806 0.049283774 0.259797586

JAPAN 0.006963788 0.048643462 0.143159797

GERMANY (0.001960766) 0.055539822 (0.035303789)

Studying the Correlation Structure of
Index Return
• Any value of more than 0.5 will signify strong positive
correlation i.e. changes in index value of one market will
lead to a similar change in another market. On the other
hand, value between 0 and 0.5 shows least positive
correlation.

• • Value of less than zero shows negative correlation i.e.

when index value of one market goes up, it brings reverse
impact in the index value of another market.

• Value of zero signifies no correlation or association among

markets.
Correlation amongst Index Values of
Emerging Countries

Country INDIA TAIWAN BRAZIL

INDIA 1 0.89976 0.736066

TAIWAN 0.89976 1 0.804209

BRAZIL 0.736066 0.804209 1

Correlation amongst Index Values of
Developed Countries

Country USA JAPAN GERMANY

USA 1 0.5510436 0.6583297

JAPAN 0.5510436 1 0.8407062

GERMANY 0.6583297 0.8407062 1

Correlation between Index Values of
Emerging and Developed Countries

Country INDIA Brazil Taiwan

USA 0.63581 0.78128 0.65833

JAPAN 0.86668 0.8729 0.84071

GERMANY 0.31373 0.45613 0.25311