Centre For Economic And Social Studies Finance Essay

I did my internship at Centre for Economic and Social Studies, Hyderabad under the counsel of Dr. N Chandrasekara Rao for the period of two months get downing from 5th of May, 2012 to 29th of June, 2012. The Centre for Economic and Social Studies ( CESS ) was established as an independent research Centre in 1980. Appreciating its function in the publicity of research and preparation, the Indian Council of Social Science Research ( ICSSR ) ( Ministry of Human Resource Development, Government of India ) recognized it as a national institute in the twelvemonth 1986 and included the Centre in its web of establishments. Conducting interdisciplinary research in analytical and applied countries of societal scientific disciplines, embracing socio-economic and other facets of development, constitute the prevailing activities of the Centre. Its domain of research activity has expanded beyond the province of A.P. , covering other countries of the state every bit good.

The Centre has been having one-year grant-in-aid from the Government of Andhra Pradesh and the ICSSR. It besides undertakes research undertakings sponsored by the province and cardinal authoritiess, every bit good as international bureaus such as the World Bank, DFID, Ford Foundation, European Community, Rockefeller Foundation and Asian Development Bank.

The Centre ‘s research has developed expertness on subjects such as Rural Development and Poverty, Agriculture and Food Security, Irrigation and Water Management, Public Finance, Demography, Health and Environment.

The vision of Centre for Economic and Social Studies ( CESS ) , Hyderabad is to go one of the top Centre ‘s of Excellence in research in development surveies in the state by go oning its present strength of working on poorness and nutrient security, economic and societal jobs of the hapless and downtrodden and reorient and diversify its research in the new Fieldss and besides run into the challenges posed by alterations in development paradigms such as economic and societal reforms and globalisation. The major countries of research are:

Rural Development, Poverty, employment, etc.

Agribusiness and Food Security

Natural Resources and Environment

Public Finance



Apart from the research countries mentioned above, Centre besides contributes in several other countries such as rural supports and environmental economic sciences. Within environment, the Centre has particular involvement in H2O resources.

CESS besides undertakes a figure of policy oriented and socially relevant research undertakings for the State authorities. The Centre plans to go on these stopping point and effectual interactions with the State authorities and thereby supply cardinal inputs into policy preparation.

The survey I undertook is of importance in the planetary fiscal literature refering to BRIC economic systems as it throws visible radiation in the country of liberalisation of stock markets which could do these states strong rivals in the coming old ages in the universe stock markets.

Undertaking DETAILS

Many emerging markets have introduced economic reform, including stock market liberalisation during the last two decennaries. This survey examines the relationship between stock market liberalisation and economic growing of BRIC states. It besides examines the impact of stock market liberalisation on stock market public presentation of the economic systems of these states for the period 1st January, 1991 to 31st December, 2010. In add-on, it examines the market indices of Brazil, Russia, India and China ( BRIC ) and investigates the linkages among the stock markets of the BRIC states to happen if these stock markets are integrated among themselves as a consequence of stock market liberalisation utilizing hebdomadal informations for the same clip period. We employ the ADF trials, arrested development analysis, correlativity coefficients, Johansen cointegration trials and Granger causality trials. Time series analysis of single state instances shows that that there is a positive relationship between stock market liberalisation and economic growing of BRIC states. We besides see that stock market liberalisation has had a positive impact on the stock market public presentation of the BRIC states. Finally, we find that there was cointegration among the stock markets of these states for the period under survey.

The expected deliverables in the two month of survey were:

Reappraisal of Literature in the country of Financial Liberalization

Coming up with a Research Proposal

Indentifying the information beginnings and research methodological analysis

Undertaking Data Analysis

Key findings



Most of the developing states in the late seventiess and early 1980s were in a crisis of economic policy. The fiscal system proved to hold many lacks due to adverse and deteriorating economic and fiscal conditions and was unable to bring forth economic growing. Many developing states in Asia, Europe, Latin America and Africa undertook economic reforms based on the fiscal assistance provided by the World Bank and International Monetary Fund to make a suited environment for investing and develop the private sector through an economic system based on market mechanisms. The chief purpose of these reforms was to transform developing economic systems of many emerging economic systems where economic growing was underpinned by giving a encouragement to private sector growing and rapid ripening of capital markets.

Fiscal liberalisation was an of import constituent of the reforms mentioned supra. The term fiscal liberalisation covers a whole set of steps, such as liberty of the Central Bank from the authorities ; complete freedom of finance to travel into and out of the economic system, which implies full convertibility of the currency ; forsaking of all “ precedence sector ” imparting marks ; an terminal to government-imposed differential involvement rate strategies ; liberating of involvement rates ; complete freedom of Bankss to prosecute net incomes unhindered by authorities directives ; remotion of limitations on the ownership of Bankss, which means de-nationalization, full freedom for foreign ownership, and an terminal to “ voting caps ” ; and so on.

Basically, fiscal liberalisation involves the followers:

capital history liberalisation ;

banking sector liberalisation and

stock market liberalisation

This survey fundamentally focuses on the 3rd component of fiscal liberalisation i.e. stock market liberalisation and efforts to analyse its linkages with the emerging economic systems of BRIC ( Brazil, Russia, India and China ) states in assorted contexts.

“ Stock Market Liberalization is a determination by a state ‘s authorities to let aliens to buy portions in that state ‘s stock market ” ( Henry 2000b ) . This can be accomplished via state financess, American depositary grosss or direct purchase of portions in local currency. In 1984, there were merely two emerging markets in which aliens could put. By 1999 there were at least 40 such markets.

Standard international plus pricing theoretical accounts ( IAPMs ) predict that stock market liber- alization may cut down the liberalizing state ‘s cost of equity capital by leting for hazard sharing between domestic and foreign agents ( Stapleton and Subrahmanyan ( 1977 ) , Errunza and Losq ( 1985 ) , Eun and Janakiramanan ( 1986 ) , Alexander, Eun, and Janakiramanan ( 1987 ) , and Stulz ( 1999a, 1999b ) ) .

It has two of import empirical deductions for those emerging states that liberalized their stock markets in the late eightiess and early 1990s.

First, if stock market liberalisation reduces the aggregative cost of equity capital so, keeping expected future hard currency flows changeless, we should detect an addition in a state ‘s equity monetary value index when the market learns that stock market liberalisation is traveling to happen.

Second, we should detect an addition in physical investing following stock market liberalisations, because a autumn in a state ‘s cost of equity capital will transform some investing undertakings that had a negative net nowadays value ( NPV ) before liberalisation into positive NPV enterprises after liberalisation.

This 2nd consequence of stock market liberalisation should bring forth higher growing rates of end product and have a broader impact on economic public assistance than the fiscal windfall to domestic stockholders ( see Henry ( 1999a ) ) .

There are surveies done on the impact of market liberalisation on existent economic system, hazards and, growing rates of private investing, foreign equity, portfolio retentions, and efficiency of equity markets. Surveies by Grabel, Kwan and Reyes, Levine and Zervos, Henry, Bae, Chan and Ng, and Patro stress on the impact of market liberalisation on stock monetary values, stock returns and stocks volatility. Levine and Zervos besides concern on the impact on stock market size and liquidness. The impact of stock market liberalisation on market integrating has been investigated by Tai, Hunter, Baharumshah, Sarmidi and Tan, Ragunathan, and Levine and Zervos. However those surveies emphasize on the period of pre and station first market liberalisation of each state. Furthermore, none of the surveies entirely focus on BRIC states.

The wide research aims of the survey are:

To analyze if there is any short-term or long tally relationship between stock market liberalisation and economic growing of BRIC states and whether the relationship is positive.

To analyze the impact of stock market liberalisation on stock market public presentation of the emerging market economic systems of BRIC states.

To analyze if these economic systems are integrated among themselves and if so who exercises greater influence in the planetary stock market.

The BRICs are among the largest 20 states in the universe and they are projected to go among the most powerful economic systems within the following 50 old ages ( Wilson and Purushothaman, 2003 ; Jensen and Larsen, 2004 ) . While the inquiry of whether stock markets promote growing has gained considerable attending in academic and policy treatments, there is small theoretical and empirical work in the finance literature turn toing to the interactions among the stock markets of BRIC states and its impact on economic growing.

It is of import to analyze the above because replies to them can assist international investors, both establishments and persons, to comprehend these markets operations for variegation additions. It can besides help policy shapers, particularly for the emerging markets, to do more appropriate policy ordinances in position of place state ‘s economic good health and other related states environment every bit good. Given these states large size, one state ‘s policy, such as tightening or relaxation IPO ordinances, can impact planetary capital flow way.

The survey is organized as follows. Section II provides a brief literature study. Section III outlines the mechanisms underlying the survey. Section IV describes informations beginnings and the variables used. Section V outlines the empirical methodological analysis utilised and discusses the consequences. Section VI concludes.

Literature Review

R Levine and other bookmans [ Bond and Smith 1996 ; Demirguc-Kunt and Levine 1996a, 1996b ; Demirguc-Kunt and Maksi movic 1996a and Levine and Zervos 1996a, 1996b ] were the first who did a comprehensive survey on the relationship between stock market development and economic growing was made by the World Bank research group, viz. , . They investigated ( 1 ) the compatibility of stock market development with economic growing, and ( 2 ) the compatibility of stock market development with fiscal mediators, with some empirical grounds.

Theoretically, a turning literature argues that stock market development hike economic growing. Greenwood and Smith ( 1997 ) show that big stock markets can diminish the cost of mobilising nest eggs, therefore easing investing in most productive engineerings.

Empirical grounds associating stock market development to economic growing has been inconclusive even though the balance of grounds is in favour of a positive relationship between stock markets and economic growing. Levine and Zervos ( 1998 ) find that assorted steps of stock market activity are positively correlated with steps of existent economic growing across states, and that the association is peculiarly strong for developing states. Their consequences besides show that the steps of banking and stock market development are correlated with current and future rates of economic growing and productiveness betterment after commanding for initial conditions and economic and political factors

Durham ( 2002 ) , on the other manus, finds that the positive impact of stock market development is mostly due to the dependance on the inclusion of higher income states in the arrested development samples, which limits the relevancy for lower income states.

He provides grounds that indicates that stock market development has a more positive impact on growing for greater degrees of GDP per capita, lower degrees of state recognition hazard, and higher degrees of legal development.

Calderon-Rossell ( 1991 ) developed a partial equilibrium theoretical account of stock market growing theoretical account which is to day of the month theoretical account represents the most comprehensive effort to develop the foundation of a fiscal theory of stock market development. Recent grounds from the economic growing and finance literature suggests that a well-developed fiscal sector is critical for economic growing ( for a study see Levine ( 1997 ) ) . However, most surveies in the literature find it hard to set up a causal nexus between fiscal development and economic growing because of the potentially endogenous finding of the two.

Mishkin ( 2001 ) argued that fiscal liberalisation promotes transparence and answerability, cut downing inauspicious choice and moral jeopardy. These betterments attempt to cut down the cost of borrowing in stock markets which finally increase the liquidness and the size of the stock market.

Garcia and Liu ( 1999 ) examined the macroeconomic determiners of stock market development in a sample of Latin American and Asiatic states. The consequences show that GDP growing, domestic investing, and fiscal intermediary sector development are of import factors. Yartey ( 2007 ) finds that a per centum point addition in fiscal intermediary sector development tends to increase stock market development in Africa by 0.6 points commanding for macroeconomic stableness, economic development, and the quality of legal and political establishments.

El-Wassal ( 2005 ) investigates the relationship between stock market growing and economic growing, fiscal liberalisation, and foreign portfolio investing in 40 emerging markets between 1980 and 2000. The consequence shows that economic growing, fiscal liberalisation policies, and foreign portfolio investings were the taking factors of the emerging stock markets growing

Greenwood and Smith ( 1996 ) show that stock markets lower the cost of mobilising nest eggs, easing investings into the most productive engineerings. Obstfeld ( 1994 ) shows that international hazard sharing through internationally incorporate stock markets improves resource allotment and accelerates growing. Bencivenga, et Al. ( 1996 ) and Levine ( 1991 ) have argued that stock market liquidness, the ability to merchandise equity easy, plays a cardinal function in economic growing ; although profitable investings require long tally committedness to capital, rescuers prefer non to release control of their nest eggs for long periods. Liquid equity markets ease this tenseness by supplying assets to rescuers that are easy liquidated at any clip.

There are surveies on the impact of market liberalisation of existent economic system, hazards and growing rates of private investings, foreign equity portfolio retentions, and efficiency of equity markets.

Grabel, Kwan and Reyes, Levine and Zervos, Henry, Bae, Chan and Ng, and Patro stress on the impact of market liberalisation on stock monetary values, stock returns and stock volatility. Levine and Zervos besides concern on the impact on stock market size and liquidness.

The impact of stock market liberalisation on market integrating has been investigated by Tai, Hunter, Baharumshah, Sarmidi and Tan, Ragunathan and Levine and Zervos.

Kwan and Reyes survey on Taiwan, Grabel focuses on Argentina, Columbia, Venezuela, South Korea, and Philippines, Laopodis concentrates on Greece, Ragunathan examines Australian market, Hunter analyzes Argentina, Chili and Mexico markets, Tai focuses on 6 emerging markets viz. India, Korea, Malaysia, Philippines, Taiwan and Thailand.

Whether the capital or stock markets have been integrated, there are many different ways of probe have been done. Guo examines the grounds on saving-investment correlativities and the covered involvement para conditions by utilizing GARCH theoretical account to estimate the grade of fiscal integrating. He focuses on 8 East Asia emerging markets.

Lin uses unconditioned average discrepancy efficiency of MSCI to 16 OECD states, Hong Kong, and 5 Asiatic emerging states. The integrating of capital markets has besides been examined by following lawfully separated portion markets ( LSSM ) by Qi, analysing the co-movements of existent involvement rates by Phylaktis, explicating a multivariate panel arrested development theoretical account to analyze investing barriers and planetary concern rhythm by Chuah, mensurating the ingestion forms by Bayoumi, analysing foreign direct investing as a step for capital flows by Egger, Falkinger, and Grossmann, mensurating discrepancy of returns as step of hazard by Solnik, analyzing value of corporate variegation by Fauver, Houston, and Naranjo, and mensurating resources to be held firmly and intertemporally transferred at a lower rate of return by Rowat and Dutta.

Hunter uses the conditionally expected monthly returns on value-weighted indices ( portfolios ) of American Depository Receipt ( ADRs ) and the U.S. markets in an plus pricing theoretical account to analyze the degree of integrating. The ADRs and the U.S markets expected returns are jointly modeled as a merchandise of time-varying monetary values and measures of equity and currency hazards. The monetary values of hazards for local ADRs portfolios and the U.S market portfolios, in the post-liberalization period, are tested. Ragunathan conducts trial for both integrating and cleavage utilizing continuously compounded monthly rates of return on 23 CRIF industry portfolios and the MSCI World and US indices as placeholders for the planetary index as modeled by Jorion and Schwartz ( 1986 ) .

Lin defines integrated stock markets as when 2 assets of the same hazard degree from 2 randomly selected capital markets have the same expected return. She uses average discrepancy efficiency of the MSCI universe index in the context of the Sharpe-Lintner CAPM. In other word, if Sharpe-Lintner CAPM holds for the set of assets and the benchmark portfolio is mean-variance efficient, so the capital markets are integrated.

Bora Aktan, Pinar Evrim Mandaci, Baris Serkan Kopurlu and Bulent Ersener examined the emerging market indices of Brazil, Russia, India, China, and Argentina ( BRICA ) and investigated the linkages among the stock markets of the BRICA states and their dealingss with the US market utilizing the vector car arrested development ( VAR ) techniques to pattern the mutualities and Granger causality trial to happen grounds of a short-term relationship between these markets. In add-on, they employed the Impulse Response trial to measure the continuity of dazes by utilizing day-to-day informations.

Peter Blair Henry examines stock market liberalisations in a sample of 11 developing states that liberalized their stock markets among which 9 experience growing rates of private investing above their non-liberalization median in the first twelvemonth after liberalising. In the 2nd and 3rd old ages after liberalisation, this figure is 10 of 11 and 8 of 11, severally. The average growing rate of private investing in the three old ages instantly following stock market liberalisation exceeds the sample mean by 22 per centum points. The grounds stands in crisp contrast to recent work that suggests capital history liberalisation has no consequence on investing.

S.Vanitha, P.Srinivasan and V.Karpagam in their research focal point on four emerging states, viz. the Brazil, Russia, India and China jointly called as BRIC and developed states viz. U.S, U.K, Japan and Germany. They attempt to analyze the integrating between different BRIC states and developed states.


The construct of stock market development is a cardinal one in finance. To mensurate stock market development, Beck et Al. ( 1999 ) lineations three cardinal stock market indexs in mensurating size, activity, and efficiency.

The ratio of stock market capitalisation to GDP ( MC ) , measures the size of the stock market as it aggregates the value of all listed portions in the stock market. It is assumed that the size of the stock market is positively correlated with the ability to mobilise capital and to diversify hazard. However, the size of the stock market does non supply any indicant of its liquidness.

Market capitalisation as a proportion of GDP rose at an unprecedented rate in taking developing economic systems called BRIC than the developed states from 2001 to 2008.

The value traded to GDP variable ( VT ) , is used to mensurate the stock market liquidness, which equals the value of the trades of domestic stocks divided by GDP. Liquidity in the stock market reduces the deterrence to investing as it provides more efficient resource allotment and therefore economic development.

The Turnover Ratio ( TR ) , measures the efficiency of the domestic stock market which is equal to the value of trades of portions on national stock markets divided by market capitalisation. More efficient stock markets can further better resource allotment and spur growing ( Bencivenga et al. , 1995 ) .

Many documents find that stock market development depends on the degree of development of the state ( La Porta et al. , 1997, 2006 ; Rajan and Zingales, 2003 ; Ben Naceur et al. , 2007 ) , with more developed states holding bigger markets.

I use stock market development as a placeholder for stock market liberalisation.

The four BRIC states vary in their structural features, economic policies and geopolitical importance. China and India are economic systems with most population life in rural countries, and comparatively closed and collectivist capital markets. Their development scheme is export led, based on domestic industrialisation for export markets. Meanwhile, Brazil and Russia have most of their population life in urban countries. Brazil and Russia are chiefly natural resource-based economic systems and good known trade good exporters. Their capital markets, while developed at really different periods and gait, are much more unfastened and presently capable to comparatively take down province controls.

Brazil and India underwent official equity market liberalisation in May 1991 and November, 1992, severally, and have continued the reform procedure. Major institutional reforms have been implemented in Russia and China including the reopening and constitution of new stock exchanges. Access to international capital markets has increased as corporations from each BRIC have issued American Depository Receipts ( ADRs ) . The pick of exchange rate government is a topical issue for EM.

In the BRICs, China operated a fixed exchange rate government – With the renminbi ( RMB ) tied to the US dollar – until a new government was adopted in July 2005. On the contrary, India has pursued a managed exchange rate government which remains integral. Brazil and Russia implemented creeping nog and currency set agreements as portion of stabilisation programmes implemented in 1994 and 1995, severally, with the existent and rouble linked to the US dollar. New drifting agreements were implemented following the 1998 FX crises.

These large emerging markets outperform all major mature markets in 2006, with China taking at 59 % return in US dollar, followed by Russia at 50 % , India at 48 % , Brazil at 38 % contrasting US S & A ; P 500 at 14 % and London ‘s FTSE at 11 % , and Japan at 7 % .

The chief BRIC companies whose stocks compose the stock index for each state are as follows:

Brazil: Petrobras ( Energy ) , Vale ( Mining ) , Itau – Unibanco ( Banking ) , Ambev ( Beverage ) and Bradesco ( Banking ) ;

Soviet union: Gazprom ( Energy ) , Sberbank ( Banking ) , Rosneft ( Energy ) , Lukoil ( Energy ) and Norilsk Nickel ( Mining ) ;

China: Petrochina ( Energy ) , ICBC ( Banking ) , China Construction Bank ( Banking ) , Bank of China ( Banking ) and Agricultural Bank of China ( Banking ) ;

India: Reliance Industries ( Industry ) , Tata Consultancy Services ( IT ) , Infosys Technologies ( IT ) and State Bank of India ( Banking )

Stock Market in BRIC states are each unambiguously positioned in footings of industry strengths and economic growing drivers. As a consequence, stock markets in BRIC states have displayed a comparatively low correlativity with each other over the 10 twelvemonth period ended December 31, 2011.

The exchanges of the BRICS emerging market axis have announced a joint enterprise to expose investors to merchandises in these dynamic economic systems known as ‘BRICSMART ‘ , this inaugural gives investors easier entree to the BRICS markets through benchmark equity index derived functions. These ( “ the BRICSMART merchandises ” ) are now offered in local currency as they are cross-listed on the exchanges involved in the BRIC states.

Investings in these economic systems are in demand, as the BRICS states and fiscal markets are expected to go progressively relevant in the coming decennary. Apart from cross-listing merchandises, other chances are explored to advance greater development and apprehension between the several markets. We take a expression at the stock markets of these states below.

1. Brazil ( BM & A ; FBOVESPA )

BM & A ; FBOVESPA S.A. – Securities, Commodities and Futures Exchange was created in 2008 with the integrating of the Brazilian Mercantile & A ; Futures Exchange ( BM & A ; F ) and the Sao Paulo Stock Exchange ( Bovespa ) . Together, the companies have formed the 3rd largest exchange in the universe in footings of market value, the 2nd largest in the Americas, and the taking exchange in Latin America. BM & A ; FBOVESPA offers trading in equities on the hard currency, options and forward markets, and indices, involvement rates, foreign exchange, agricultural and energy trade goods on the hereafters, options, frontward and barter markets, every bit good as other topographic point market minutess on gold, US Dollar and federal authorities securities.

The BOVESPA Index is the chief index of the Brazilian stock market ‘s mean public presentation. BOVESPA ‘s relevancy is twofold: it reflects the fluctuation of BM & A ; FBOVESPA ‘s most traded stocks and it has tradition, holding maintained the unity of its historical series without any methodological alteration since its origin in 1968. It is the current value, in Brazilian currency, of a theoretical stock portfolio constituted in 1968 ( basal value: 100 points ) by a conjectural investing. The index reflects non merely the fluctuation of the stock monetary values but besides the impact of the distribution of benefits, and is considered an index that evaluates the entire return of its constituent stocks.

The BOVESPA declined 7418 points or 12.20 per centum during the last 30 yearss. Historically, from 1976 until 2012, the BOVESPA averaged 21545.1 making an all clip high of 73516.8 in May of 2008 and a record depression of 0.0 in June of 1984.

2. Russia ( MICEX- RTS )

The Russian Trading System ( RTS ) was established in 1995 in Moscow, consolidating assorted regional trading floors into one exchange. Originally RTS was modeled on NASDAQ ‘s trading and colony package ; in 1998 the exchange went on line with its ain in-house system.

Initially created as a non-profit organisation, it was transformed into a joint-stock company. In 2011 MICEX merged with RTS making MICEX-RTS. The new exchange strives to accomplish the position of an internationally competitory market through improved market substructure efficiency, merchandise diverseness and liquidness. This exchange provides a broad scope of chances to investors, professional establishments and their Russian and foreign clients for equities, bonds, currencies every bit good as derived functions merchandising. The exchange provides a crystalline procedure for finding just market values of Russian assets, with a full scope of trading and post-trading services. Trading on the securities market of MICEX-RTS Group is held in three subdivisions: The chief market for equities and bonds ( settled in RUB ) , the standard subdivision for most liquid securities ( settled in RUB ) ; and the classical subdivision for equities, bonds and fund portions ( settled in USD ) .

The RTS Stock Exchange calculates and publishes 9 indexes: RTS Index, RTS-2 Index, and 7 sectoral indexes. The RTS Index and the RTS-2 Index are calculated utilizing two different lists of stocks.

The RTS Index, RTSI, the official Exchange index, foremost calculated on September 1, 1995, is similar in map to the Dow Jones Average in New York City. It comprises of 50 of the largest stocks ( both common and preferable ) capturing 85 % of the entire market capitalisation of the Russian Trading System exchange. It is a capitalisation weighted index with a restrictive cap of 15 % on all the stocks. The index is rebalanced and the components are checked on a quarterly footing.

RTSI is computed on thirty-minute intervals utilizing real-time monetary values of the 50 most liquid Russian stocks listed on the Exchange and is relayed to the RTS Web site, RTS workstations and intelligence bureaus. The constitutional list of stocks is reviewed every 3 months.

The Russian Trading system works with criterion and hapless ‘s since 2006 to cipher the RTSI. The RTSI is one of the few indices which, outside the US, is calculated in USD. The Russian Ruble ( RUB ) index is based on the USD 1.

3. India ( S & A ; P CNX Nifty )

The National Stock Exchange of India was set up by Government of India on the recommendation of Pherwani Committee in 1991.Promoted by taking fiscal establishments basically led by IDBI at the behest of the Government of India ; it was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts ( Regulation ) Act, 1956. NSE commenced operations in the Sweeping Debt Market ( WDM ) section in June 1994. The Capital market ( Equities ) section of the NSE commenced operations in November 1994, while operations in the Derivatives section commenced in June 2000.

It is the 16th largest stock exchange in the universe by market capitalisation and largest in India by day-to-day turnover and figure of trades, for both equities and derivative trading. NSE has a market capitalisation of around US $ 985 billion and over 1,646 listings as of December 2011.Though a figure of other exchanges exist, NSE and the Bombay Stock Exchange are the two most important stock exchanges in India and between them are responsible for the huge bulk of portion minutess. The NSE ‘s cardinal index is the S & A ; P CNX Nifty, known as the NSE NIFTY ( National Stock Exchange 50 ) , an index of 50 major stocks weighted by market capitalisation.

The S & A ; P CNX Nifty, besides called the Nifty 50 or merely the Nifty, is a stock market index, and one of several taking indices for big companies which are listed on National Stock Exchange of India, index based derived functions and index financess. It is India ‘s first broad-based stock market index of the Indian stock market. The S & A ; P CNX 500 represents about 96 % of entire market capitalisation and about 93 % of the entire turnover on the National Stock Exchange of India.

S & A ; P CNX Nifty has shaped up as the largest individual fiscal merchandise in India, with an ecosystem comprising: exchange traded financess ( onshore and offshore ) , exchange-traded hereafters and options ( at NSE in India and at SGX and CME abroad ) , other index financess and OTC derived functions ( largely offshore ) .

The S & A ; P CNX Nifty covers 22 sectors of the Indian economic system and offers investing directors exposure to the Indian market in one portfolio. The S & A ; P CNX Nifty stocks represent about 65 % of the free float market capitalisation of the stocks listed at National Stock Exchange ( NSE ) as on March 30, 2012.

The S & A ; P CNX Nifty index is a free float market capitalisation weighted index. The index was ab initio calculated on full market capitalisation methodological analysis. From June 26, 2009, the calculation was changed to liberate float methodological analysis. The basal period for the S & A ; P CNX Nifty index is November 3, 1995, which marked the completion of one twelvemonth of operations of NSE ‘s Capital Market Segment. The basal value of the index has been set at 1000, and a basal capital of Rs 2.06 trillion. The S & A ; P CNX Nifty Index was developed by Ajay Shah and Susan Thomas. It presently consists of 50 major Indian companies.

4. China ( Shanghai Stock Exchange Composite )

The Shanghai Stock Exchange ( SSE ) is one among the two stock exchanges runing independently in the People ‘s Republic of China, the other being the Shenzhen Stock Exchange. Shanghai Stock Exchange is the universe ‘s 5th largest stock market by market capitalisation at US $ 2.3 trillion as of Dec 2011.Unlike the Hong Kong Stock Exchange, the Shanghai Stock Exchange is still non wholly unfastened to foreign investors due to tight capital history controls exercised by the Chinese mainland governments.

Shanghai Stock Exchange Composite represents the Chinese economic system because it tracks the public presentation of all stocks ( A portions and B portions ) of the Shanghai Stock Exchange, which is the largest stock exchange in Mainland China with a entire market capitalisation transcending 3.95 trillion dollars and the 2nd largest exchange in the universe. The basal twenty-four hours for the SSE Composite Index is December 19, 1990. The basal period is the entire market capitalisation of all stocks of that twenty-four hours. The base value is 100. The index was launched on July 15, 1991. At the terminal of 2006, the index reaches 2,675.47. Other of import indexes used in the Shanghai Stock Exchanges include the SSE 50 Index and SSE 180 Index.

Stockss in China had a negative public presentation during the last month. The Shanghai Composite Index, a major stock market index based in China, declined 79 points or 3.20 per centum during the last 30 yearss.

Data beginnings and variables

This survey employs secondary informations ( one-year ) for existent gross domestic merchandise, market capitalisation as a per centum of GDP, value traded to GDP and turnover ratio for the period of 1991-2010, which was obtained from the World Bank Database and hebdomadal information for the same period for stock indices of the BRIC states viz. , Brazil ( Bovespa ) , Russia ( RTS ) , India ( S & A ; P CNX Nifty ) , and China ( SSEC ) . All stock return series are in their local currencies and collected from Yahoo Finance. We did non utilize US dollar currency return as it would include exchange rate hazard. The liberalisation day of the months were available merely for Brazil and India.

Empirical Methodology and Results

The present survey analyzes the relationship between stock market liberalisation and economic growing. It besides tries to see the impact of stock market liberalisation on stock market public presentation of these states. In add-on it examines co-integration among BRIC states ‘ markets after stock market liberalisation during the survey period. We employ ADF trials, descriptive statistics, arrested development analysis, and Johansen co-integration trials for our analysis.

The Model

The major components of stock market development as we saw above are ratio of stock market capitalisation to GDP, value traded to GDP and turnover ratio. Hence, we can state that the determiners of these components determine the overall stock market liberalisation of the BRIC states.

To see if there is a relationship between stock market liberalisation and economic growing of the BRIC states we build the undermentioned theoretical account


Where denotes existent GDP per capita, denotes stock market development, MC is ratio of stock market capitalisation to GDP, VT denotes value traded to GDP variable and TR is turnover ratio.

Therefore, existent gross domestic merchandise which is used as a placeholder for growing is our dependent variable and market capitalisation as a per centum of GDP, value traded to GDP and turnover ratio are our independent variables.

The econometric theoretical account can be farther written as:

= + MC + VT + TR +

The figures below secret plan time-series graph for market capitalisation, value traded and turnover ratio of BRIC states against clip for the period 1991 to 2010.


Market Capitalization as a % of GDP

Stockss traded, entire value as a % of GDP

Stockss traded, turnover ratio ( % )


Market Capitalization as a % of GDP

Stockss traded, entire value as a % of GDP

Stockss traded, turnover ratio ( % )


Market Capitalization as a % of GDP

Stockss traded, entire value as a % of GDP

Stockss traded, turnover ratio ( % )


Market Capitalization as a % of GDP

Stockss traded, entire value as a % of GDP

Stockss traded, turnover ratio ( % )

Since most clip series variables have a unit root, it is important to look into for stationarity as arrested development with non -stationary informations may take to specious consequence. To avoid this job, we have to look into whether the variables applied in this survey have a unit root or non. Therefore, we use the Augmented Dickey Fuller trial foremost to look into the unit root belongings as follows.

The consequence is reported in Table I and II below.

The consequences of arrested development analysis are reported in Table III. To see the impact of stock market liberalisation on stock market public presentation of BRIC states we calculate the hebdomadal stock returns for all BRIC states.

It is calculated utilizing the hebdomadal adjusted monetary values for dividends as follows:


R J, T = Returns on stock J on clip T

P T = Price of the stock at clip T

P t-1 = Price at clip T -1

The stock series are taken in their first difference logarithm degrees.

Table IV presents the descriptive statistics for the hebdomadal stock returns of NSE and the three BRIC markets. Table V presents the impact of stock market liberalisation on stock market public presentation of these states.

In order to see if these economic systems are cointegrated among themselves we perform cointegration analysis. The consequences are reported in Table VII. However, before any set of stock series can be tested for cointegration, such monetary values and their first differences must be examined for stationarity, i.e. unit roots. For this we conduct ADF trials on stock market indices series. Table VI presents the consequences.

Future Work and Decisions

This survey looks at the relationship between economic growing and stock market liberalisation. It besides examines the stock market public presentation in the wake of stock market liberalisations. Trials indicate that markets become more efficient in the wake of liberalisation. Furthermore, it surveies if there is a co-integrating relationship between the stock markets of the BRIC states. We use ordinary least squares regression to convey out the relationship between economic growing and stock market liberalisation which we find positive in the long tally. We find strong grounds that stock market public presentation increased in the station liberalisation epoch. In add-on, we find that the stock markets of these states are co-integrated.

Since, the survey is really ambitious it involves a batch of advanced econometric tools which is beyond the range of summer internship.

There a few suggestions on heightening the work as given below ;

The survey made usage of ordinary least squares regression to convey out the relationship between stock market liberalisation and economic growing.Making usage of Vector Error Correction Mechanism could hold brought out the short- tally relationship between them if any. Similarly, Vector Auto-Regression theoretical account could hold explained the long-term relationship. Both of the econometric tools are better when compared to simple OLS arrested development.

The survey made usage of Johansen co-integration analysis to see if the stock markets of BRIC economic systems were co-integrated among themselves. Better methods would be Co-movement analysis, Copula Modeling, Multi-variate volatility methods such as Generalized Auto-regressive Conditional Heteroscedasticity ( GARCH ) .

The survey could besides do usage of Auto-regressive distributed slowdown theoretical accounts ( ARDL ) which could throw light on assorted other facets of the survey which has non been covered here.

The motion towards a synchronised stock market landscape has gained impulse, particularly during the past two decennaries, where tighter economical and fiscal linkages among developed economic systems have grown stronger. However, the rises of many of import emerging markets, which have been a major driver of planetary growing the past decennaries, have opened up extra channels for cross-border dealingss. Other causes behind the rapid addition in universe trade, capital motions, and foreign investings between universe economic systems are due to market liberalization/deregulation, technological progresss and remotions of statutory controls. To look into the leaning of one state to be affected by planetary dazes have tremendous value for forestalling future crises. The extent of fiscal and economical integrating between a country-pair may so be reflected by the grade of stock markets co-movement that they exhibit. In fact, the dynamic constructions of international economic systems have clearly intensified the complexness behind stock market public presentations. As our states become more economically interlinked, explicating the formation of monetary value co-movement between stock markets on an international degree is important for better apprehension this higher mutuality and integrating. However, the modern-day research in stock market liberalisation has non sufficiently focused on finding the drive forces behind it although this information would be most effectual for policy-makers and investors that are acute to cognize how economic linkages may act upon the states fiscal stableness, variegation possibilities and what types of common and specific dazes stock markets are most vulnerable against.

The three cardinal girls of the survey are given below:

The survey missed to look into for rearward causality for the first nonsubjective and therefore Simultaneous- Equation Modeling has been ignored due to given time-constraint.

The 2nd aim has a spot of ambiguity as the stock market liberalisation day of the months were non available for China and Russia. Besides, it was non clear whether the day of the months available for India and Brazil were of initial liberalisation or subsequent liberalisation.

The 3rd nonsubjective negotiations about cointegrating relationship among BRIC economic systems but girls to see if these BRIC stock- markets are co-integrated with other developed stock markets of the universe such USA, Mexico etc.

The three cardinal parts despite the girls are:

The survey is one of its sorts and has thrown visible radiation on the relationship between stock market liberalisation and economic growing.

The survey efforts to happen out the impact of stock market liberalisation on the stock market public presentation of the BRIC states which is an backbreaking work attempt.

It besides tries to happen out co-integrating relationships among BRIC economic systems which is a major part in this country of work.



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