US Equity Market Linkages with India and Selected Emerging Markets

Abstract

This paper examines whether Indian equity investors receive meaningful international diversification benefits by analysing the linkage between the United States equity market, India and selected emerging equity markets. Daily closing prices of the S&P 500, NIFTY 50, BIST 100, S&P Merval, Karachi 100, EGX 30 and QE All Shares are studied for January 2010 to December 2024. The paper uses empirical design consisting of daily log returns, descriptive statistics, Augmented Dickey-Fuller unit-root tests, Pearson correlation, pair-wise Granger causality and Johansen cointegration. The evidence shows that India is moderately correlated with the US market and that US returns significantly Granger-cause Indian returns as well as the returns of the selected emerging markets. At the same time, the Johansen results do not indicate a stable long-run price-level relationship between the S&P 500 and the selected local indices. The findings suggest that the main linkage is short-run and predictive rather than long-run equilibrium-based. The paper contributes by placing India inside a simple comparative emerging-market framework and by showing that international diversification should not be judged only from geographic exposure.