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Structural Breaks, Market Integration, and Volatility Transmission in Emerging and Developed Economies: A Comparative Study of India and US
DOI:DOI:18.A003.aarf.J14I01.010320
GAMARE AKSHATA JALINDAR Dr. BALAJEE CHARI
Abstract:
The increased interconnectedness of global financial markets has strengthened the focus on cross-country market integration, volatility transmission, and structural breaks, particularly between emerging and developed economies. This paper attempts at a comprehensive comparative analysis between India and the United States through the study of dynamic linkages between the stock and currency markets of the two countries. Using high-frequency secondary data for a multi-year period, the study identifies major structural breaks associated with global economic events, policy reforms, geopolitical shocks, and crisis episodes. Advanced econometric techniques are employed to capture both the long-run equilibrium relationships and the short-run causality patterns. Techniques include the Zivot-Andrews and Bai-Perron structural break tests, Johansen cointegration, VAR/VECM frameworks, and asymmetric GARCH models.Results show that there is significant evidence of long-run cointegration between the two markets, indicating growing financial integration despite inherent differences in market depth, liquidity, and regulatory structure. Detection of multiple structural breaks essentially underlines the vulnerability of emerging markets like India to global shocks emanating from the developed economies. Spillover analysis further ascertains substantial bidirectional volatility transmission, with stronger and more persistent US market influence over the Indian market, especially during periods of crisis and heightened uncertainty. Asymmetric GARCH results document that negative news and adverse shocks have disproportionately larger impacts on volatility in both economies, though the effect is more pronounced in the Indian market.Overall, the study provides very important insights for policymakers, investors, and portfolio managers by highlighting the evolving nature of the India-US financial linkages. Grasping structural shifts and the dynamics of volatility is critical to carving out hedging strategies, enhancing risk-management frameworks, and building resilient policy interventions in a financial world that is getting increasingly integrated.
