After almost three decades of the New Economic
Policy of the Government of India, now it is high time to assess the policy
prescriptions so far followed to converge the financial markets, especially the
stock and money market, objectively with the robust statistical and econometric
tools. This paper attempts to measure the integration amongst stock and some
select segments of Indian money market.The
results of Johansen and Juselius (1990) cointegration test suggest strong integration amongst the markets and
statistically significant presence of all the markets in the cointegration
space. Granger causality expectedly runs from money to stock market and
Forecast Error Variance Decomposition Analysis indicates the rigidity of the
stock and treasury bills market only, hence, warrants more attention of the
Indian policy planners for adequate steps to make these markets more flexible.
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