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ESTIC FINANCIAL MARKET INTEGRATION IN INDIA
Abstract Introduction
The domestic financial market integration is The word ‘integration’ means combining different
considered to be a precondition for the effective parts together to form a whole. In context of financial
international financial integration. This study markets, financial integration broadly means
examines the integration between the various unification of the markets. Some define it as
segments of the Indian financial market (namely convergence of prices and the risk adjusted returns
money market, credit market, government securities across the various markets. The European Central
market, capital market and the foreign exchange Bank defines financial integration as “we consider
market) and how it has changed over time as a result the market for a given set of financial instruments or
of the reform process undertaken since 1993. services to be fully integrated when all potential
Monthly data for the period 1994- 2008 (sub divided market participants in such market (i) are subject to
into three sub periods) is analyzed using correlation a single set of rules when they decide to deal with
coefficients, Granger causality test and Johansen those financial instruments or services, (ii) have
co integration test. High co-movement of interest equal access to this set of financial instruments or
rates was observed between the money market, G services, and (iii) are treated equally when they
sec market and the credit market. It was found that operate in the market.”
the integration among these five segments has
increased over the period of study. In the recent time The operational definition of financial integration
period the integration of the G sec market has for this study is unification of the various segments
considerably increased with others as a result of the of the financial market leading to convergence of
initiatives taken in this direction. Capital market is the prices/ returns. The integration of the financial
found to be least integrated with others. The study markets can be broadly studied at three different
supports the reform process and brings in to light dimensions- international, regional and domestic
the areas where more action is required. financial integration. International financial
integration means the integration of domestic
Keywords: Domestic Financial Market financial market with that of the rest of the world.
Integration, Monetary Policy Transmission, Regional financial integration refers to unification
Financial Sector Reform, Johansen Co of the domestic market with that of a particular region
integration test, Granger Causality test. (for example, Asian region). Domestic financial
integration means the integration within various
Dr. Vanita Tripathi, Assistant Professor, segments of the market. International financial
Department of Commerce, University of Delhi integration is one of the well researched areas in
vtripathi@commerce.du.ac.in finance. But not much literature exists in the area of
Ms. Shruti Sethi Research Scholar, Department of integration of the various segments of the financial
Commerce University of Delhi,
shrutisethi0906@gmail.com
(43)
Abstract Introduction
The domestic financial market integration is The word ‘integration’ means combining different
considered to be a precondition for the effective parts together to form a whole. In context of financial
international financial integration. This study markets, financial integration broadly means
examines the integration between the various unification of the markets. Some define it as
segments of the Indian financial market (namely convergence of prices and the risk adjusted returns
money market, credit market, government securities across the various markets. The European Central
market, capital market and the foreign exchange Bank defines financial integration as “we consider
market) and how it has changed over time as a result the market for a given set of financial instruments or
of the reform process undertaken since 1993. services to be fully integrated when all potential
Monthly data for the period 1994- 2008 (sub divided market participants in such market (i) are subject to
into three sub periods) is analyzed using correlation a single set of rules when they decide to deal with
coefficients, Granger causality test and Johansen those financial instruments or services, (ii) have
co integration test. High co-movement of interest equal access to this set of financial instruments or
rates was observed between the money market, G services, and (iii) are treated equally when they
sec market and the credit market. It was found that operate in the market.”
the integration among these five segments has
increased over the period of study. In the recent time The operational definition of financial integration
period the integration of the G sec market has for this study is unification of the various segments
considerably increased with others as a result of the of the financial market leading to convergence of
initiatives taken in this direction. Capital market is the prices/ returns. The integration of the financial
found to be least integrated with others. The study markets can be broadly studied at three different
supports the reform process and brings in to light dimensions- international, regional and domestic
the areas where more action is required. financial integration. International financial
integration means the integration of domestic
Keywords: Domestic Financial Market financial market with that of the rest of the world.
Integration, Monetary Policy Transmission, Regional financial integration refers to unification
Financial Sector Reform, Johansen Co of the domestic market with that of a particular region
integration test, Granger Causality test. (for example, Asian region). Domestic financial
integration means the integration within various
Dr. Vanita Tripathi, Assistant Professor, segments of the market. International financial
Department of Commerce, University of Delhi integration is one of the well researched areas in
vtripathi@commerce.du.ac.in finance. But not much literature exists in the area of
Ms. Shruti Sethi Research Scholar, Department of integration of the various segments of the financial
Commerce University of Delhi,
shrutisethi0906@gmail.com
(43)
