A Study of NSE with NASDAQ
Financial Reporting and Analysis
Section F - Group 6
Table of Contents
3. Literature Review4
4. Research Methodology4
5.2 Data Analysis6
5. Key Findings14
This paper aims to do a comparative study on the National Stock Exchange (NSE) with NASDAQ. It aims at analysing the short-term as well as the long-term relationships between the Indian and American markets. The data being used is the previous three year’s data (Jan 1, 2009 to Dec 31, 2011). It analyses the various reasons which can cause volatility in the share markets and also take specific instances over the past 3 years data of both NSE and NASDAQ to demonstrate it.
The stock market has gained a lot of prominence over the last 2 decades. Globalization and liberalization has completely changed the economic scenario of the entire world. The Indian stock exchange holds an important position not only in Asia but also in the entire world. One of the oldest stock exchanges in the world is Bombay Stock Exchange (BSE). National Stock Exchange (NSE) is also one of the oldest and fastest growing stock exchanges in the world. After the opening up of Indian economy to the world, it has been on the rise continuously. Today any global issue which causes volatility in the global markets is reflected in the Indian markets as well. There are five alternate postulates behind the increased linkages among stock markets: a) Deregulation of financial markets
b) Improvements in the flow of information
c) Reduction in transaction costs
d) Gains available from international diversification of investment portfolios e) Evidence of the existence of stock market leaders and followers [Mukhopadhyay,2009] The information revolution has entirely transformed the scene today. Investors can keep a real time check on the data and any international event can affect the share prices in the global markets and can also lead to a chain reaction. Also today due to the difference in the time zones the markets open and close at different times. So the opening market is well aware of the closing prices in the closed markets. India stated its globalization in 1992 and since then a significant linkage to trade, policy framework, international relations, removal of exchange barriers and many such growth measures have been the hallmark of our economy. A number of studies have been conducted after globalization and found a significant integration of the Indian stock markets with the global stock markets. Through this paper we intend to find the key trends and patterns of the Indian and US markets through the stock markets. Using NSE and NASDAQ data we analyse the stock markets and try to identify the possible causes that could have caused an upward or downward shift in the prices of the stocks. Also we would try to correlate both the markets and observe any similarities. We will also analyse the sector-wise effect on the stock markets and the impact of any particular sector on the markets which could have caused a probable shift in the pattern.
3. Literature Review
There have been various studies conducted on the linkages between the stock markets. Sharma and Kennedy (1977) investigated that the stocks listed in the Bombay Stock Exchange (BSE) obey the behaviour of advanced markets like the USA. The research paper by Menon, Subha and Sagaran showed the absence of cointegration between Indian and American markets. But it showed some amount of cointegration of Indian stock markets and the Shanghai markets. As mentioned in the previous section the Indian stock markets have shown a lot of change in trends after the liberalization of Indian economy in 1992. There had been an entire set of reforms which happened during this period. The impact of these reforms may be gauged from the fact that total foreign...