Integration of Domestic Financial Markets: An Indian Experience Dr. Ray Hirak*, Lahiri Avijit**, Dey Debashre*** *Associate Professor, University of North Bengal **Assistant Professor, St. Joseph College, Darjeeling, India ***Assistant Professor, Siliguri College of Commerce Online published on 9 October, 2015. Abstract This paper attempts to assess the integration of domestic financial market-segments, the very thinly researched issue, considering only the Capital, Foreign exchange and Call money market in the context of India. Test results suggest the presence of statistically significant long - term relation and the call money market in the core of the co - integration space. Evidence of the inverse relation between foreign exchange market and stock market attests the theories of new-liberalists for unification. Granger causality, in essence, points to the fact that over and above the ‗feed-back‘ relationship flowing in between stock, foreign exchange and call money market, the activities of call money market precedes the activities of foreign exchange market indicating a clear assumption of greater importance by the call money market. Only the forecast error variance decomposition analysis endorses the view that despite enormous attempt by policy planners, agenda of complete convergence of the segments, at least the markets under the study, is still incomplete. The evidences of strong co-integration may be due to (i) the availability of arbitrage opportunities in Indian markets, till date and (ii) the inefficiencies of the markets and its participants wasting valuable information about the markets. This warrants a further in depth examination of the issue. Top Keywords Domestic integration, Call Money, Forex, Capital Market, Causality, VECM, Impulse Response, Cointegration. Top |