Market Integration, Price Efficiency and Short-Run Dynamics

Short-Run Dynamics A Tale of Two National Stock Markets Raghbendra Jha Hari K Nagarajan This paper models price dynamics in the two national stock exchanges. It is discovered that there are well-defined relations between stock prices in the long run in each of these markets. Hence market segmentation is strongly ruled out. Second, the short-run behaviour of stock prices is such that no stock price can be considered to be independent of the others. Short-run price movements are mostly random or unstable, but the impulse response function analysis suggests that the instability does not persist for long. Finally, there seems to be a marked difference in the reaction in the two markets for the same stocks in terms of the responses to firm specific and market specific shocks. This may point to differences in the types of traders in these two exchanges.

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