Test of capital market integration using Fama-French three-factor model: empirical evidence from India

Investment Management & Financial Innovations

Kirtivardhan Singh¹  Khushi Goyal²  Amit Kumar³  Neeraj Sehrawat⁴  Narander Kumar Nigam⁵ 

[1] B.B.A. (FIA), Student, Shaheed Sukhdev College of Business Studies, University of Delhi, New Delhi;BMS, Student, Shaheed Sukhdev College of Business Studies, University of Delhi, New Delhi;M.Com., Assistant Professor, Shaheed Sukhdev College of Business Studies, University of Delhi, New Delhi;Neeraj Sehrawat, M.B.A., Assistant Professor, Shaheed Sukhdev College of Business Studies, University of Delhi, New Delhi;Ph.D., Assistant Professor, Shaheed Sukhdev College of Business Studies, University of Delhi, New Delhi;

关键词: asset pricing;    diversification;    international portfolio;    stock market;   

DOI  :  10.21511/imfi.17(2).2020.10

来源: DOAJ

【 摘 要 】

Integration or segmentation of markets determines whether substantial advantages in risk reduction can be attained through portfolio diversification in foreign securities. In an integrated market, investors face risk from country-specific factors and factors, which are common to all countries, but price only the later, as country-specific risk is diversifiable. The aim of this study is two-fold, firstly, investigating the superiority of the Fama-French three-factor model over Capital Asset Pricing Model (CAPM) and later using the superior model to test for integration of Indian and US equity markets (a proxy for global markets). Based on a sample of Bombay Stock Exchange 500 non-financial companies for the period 2003–2019, the data suggest the superiority of Fama-French three-factor model over CAPM. Using the Non-Linear Seemingly Unrelated Regression technique, the first half of the sample period (2003–2010) shows evidence of market segmentation; however, the second sub-period (2011–2019) shows weak signs of market integration, which is supported by the Johansen test of cointegration, suggesting that Indian market is gradually getting integrated with global markets.

【 授权许可】

Unknown