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Correlation Analysis of Indian Stock Market with International Markets

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Correlation Analysis of Indian Stock Market with International Markets

Business Statistics Project

Chandraket Mall


Manish Ranjan


Mayank Sharma


Neha Rai


Swati Verma



Submitted by:


The objective of this project is to study the correlation between the movements in Indian stock market and its international counterparts. The aim is to understand the level at which financial markets are getting integrated into a global market and the impact one stock exchange can have on other stock exchanges.


Stock exchanges are an organized marketplace, where buyers and sellers gather to trade company stocks or other securities.

The Indian stock exchanges are not only important in Asia but also at global stage. While Bombay Stock Exchange (BSE) is one of the oldest exchanges in the world, National Stock Exchange (NSE) is a comparatively new exchange which is technologically advanced. The Indian stock market scene picked up after the LPG (Liberalization, Privatization and Globalization) economic reforms in the early 1990s. The corporate governance rules brought all the listed companies at uniform level.

Today, Stock exchanges are widening their investor base by extending their service area outside their national boundaries. This has resulted in transaction of higher volumes. Also, exchanges regularly solicit companies outside their home country and encourage them to get listed on their exchange.

Origin of various stock exchanges:

The New York Stock Exchange (NYSE) was established in May, 1792, when the Buttonwood Agreement was signed by twenty-four stock brokers outside of 68 Wall Street in New York under a buttonwood tree. Also called the “Big Board”, it is the largest stock exchange in the world in terms of dollar volume and second largest in terms of number of companies listed. The Hong Kong stock exchange is the 8th largest stock exchange in the world in terms of Market capitalization. The Hang Sang Index (HIS), was started on November 24, 1969. The Russian stock exchange was set up in 1995 by consolidating the separate regional stock exchanges into one uniformly regulated trading floor.


In order to conduct correlation analysis of different exchanges, the observation period is chosen from 1st January 1995 to 31st December 2006. This period is further divided into different sets of years to capture the effect and movement of stock exchanges with each other during following events:




East Asian miracle and crisis period


Technology boom and tech bubble burst period


Slow global recovery from recession


Investment boom in developing and emerging market

For our analysis, we have divided world into four main regions, namely, the US, European Union, Asian region and India. The stock exchanges representing different regions are listed below:


Stock exchange

Indices name


Bombay Stock Exchange


Hong Kong

Hong Kong Stock Exchange



New York Stock Exchange



Russian Stock Exchange

RTS Index

Also, all the analyses have been done with the monthly closing price of each Index.

Results & Inferences

India (SENSEX) and Russia (RTSI)        

[pic 1][pic 2]

Period 1

During period 1, there was low connectivity between two exchanges. This is evident from the low correlation coefficient of 0.5071.


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