Efficiency of Capital Markets: A Study with Special Reference To G7 Nations Stock Markets Dr. Babu M.1,*, Hariharan C.2,** 1Assistant Professor, Bharathidasan School of Management, Bharathidasan University, Tiriuchirappalli 2Ph. D Research Scholar, Bharathidasan School of Management, Bharathidasan University, Tiriuchirappalli *Corresponding Author E-mail: drbabu@bdu.ac.in
**harisraj7791@gmail.com
JEL Classification F15, F21, F36, G15 Online published on 2 June, 2018. Abstract This study aims to explore the linkages among G7 nations’ stock market indices, namely, CAC 40, FTSE 100, FTSE MIB, GDAXI, NIKKEI 225, NYSE COMPOSITE and S&P TSX COMPOSITE during the study period from April 2004 to March 2014 by using Co integration Test, Vector Error Correction Model (VECM) and Granger Causality Test. The results of Johansen Co integration Test found that daily returns of G7 nations stock market indices were Co Integrated, The co efficient value of Vector Error Correction Model implied that the FTSE MIB, GADAXI and S&P Tesx Composite did not witness short term relationship with CAC 40 INDEX, FTSE 100, NIKKEI 225 and NYSE COMPOSITE INDEX, rest of the indices recorded short run relationship. The results of Granger Causality Test exhibited bidirectional relationship between following indices-S&P TSX COMPOSITE and CAC 40 INDEX, S&P TSX COMPOSITE and FTSE MIB, S&P TSX COMPOSITE and NYSE COMPOSITE INDEX, CAC 40 and FTSE MIB. Unidirectional causal relationship was found between FTSE 100 and GDAXI, FTSE MIB and NIKKEI 225, NIKKEI 225 and S&P TSX COMPOSITE. Finally the study concluded that G7 nations’ stock market indices recorded both Short and Long run linkages during the study period, hence international investors G7 nations ’investors could go for both long run and short run diversification for reducing their investment risk in future, if investors diversify their investment in to listed companies of G7 nations ’stock market indices. Top Keywords G7 Indices, Integration, GARCH (1, 1) Model, Johansen Co Integration Test, Vector Error Correction Model and Granger Causality Test. Top |