Interaction Among Emerging Market Stock Exchanges: An Empirical Study on the Stock Exchanges of Turkey, Russia, China, and India

Abstract

Purpose -This study aims to identify the interactions among stock market indices in emerging economies and reveal the short- and long-term dynamics of these interactions. The research focuses specifically on the stock market indices of Turkey, Russia, China, and India, providing valuable insights for investors and policymakers regarding the relationships between emerging markets. Design/methodology/approach – Monthly data from January 2003 to December 2023 were analyzed using the Vector Autoregression (VAR) model and the Johansen cointegration analysis. Additionally, several statistical tests were conducted, including the Augmented Dickey-Fuller (ADF) unit root test, AR characteristic polynomial inverse root analysis, lag selection test, Johansen cointegration test (Trace), normality test, and the Vector Error Correction Model (VECM), to reveal the short- and long-term interactions among the stock markets. Findings - The analysis results indicate that there is no significant relationship among the stock markets of the four countries in the short term. However, in the long term, a strong cointegration relationship has been identified among these markets. This suggests that the economies and financial markets of these countries influence each other and exhibit similar movements over the long term. Discussion- The findings contribute to a better understanding of economic integration and long-term relationships among financial markets in emerging economies. The results demonstrate that stock markets operate independently in the short term, but this independence transitions into mutual interactions over the long term. This study provides valuable information for investors in developing portfolio diversification strategies and for policymakers in designing economic policies that take into account the interconnections among financial markets.