The paper examines the impact of the developed world market on the Indian industrial portfolios’ return by taking returns of Dow Jones Index and Morgan Stanley Composite Index (MSCI) as representatives of the developed world markets’ returns, and returns of various sectoral indices, constructed by Bombay Stock Exchange (BSE), as representatives of the Indian industrial portfolios’ return. For the purpose, a set of parametrical and econometric tests are employed on daily data, from January 2000 to December 2009. The findings show that auto, metal, banking, healthcare, technology and real estate are the most affected sectors by the US market and developed world markets. The study also reveals that the Indian markets also influence the developed world markets.

There has been a renewed interest in the studies of the integration of stock markets worldwide in the wake of economic meltdown, which began in America and has now spread across the globe. For the last two decades, a considerable amount of research has been done to find out the degree of integration among the world markets and contrasting conclusions have been drawn. Eun and Shim (1989) found evidence of co-movements between the US stock market and other world equity markets. Jeon and Furstenberg (1990) analyzed the high degree of international co-movement in stock price indices which has increased significantly since the 1987 crash. Johnson and Soenen (2002) tried to investigate the economic integration of Japanese equity market with 12 other Asian countries, out of which six countries were found to be highly integrated with Japan.

Alexander (2004) used a unique dataset covering eight months of high frequency data on the indices from markets in the US, London, Frankfurt, Paris, Warsaw, and Prague to investigate the issue of stock market integration and found that markets react very quickly to the information revealed in the prices on other markets. In all cases, the reaction occurs within 1 h. Wong et al. (2004) analyzed the issue of co-movement between stock markets in major developed countries and Asian emerging markets and found cointegration between some of the developed and emerging markets which has increased since the stock market crash in 1987.

On the other hand, Kam et al. (1992) used unit root and cointegration tests to examine the relationships among stock markets in Hong Kong, South Korea, Singapore, Taiwan, Japan, and the US, and found no evidence of cointegration among the stock prices. Byers and Peel (1993) discussed the relationships between stock market indices of the US, the UK, Japan, West Germany and the Netherlands by using bivariate and multivariate techniques and found the UK and Japan to be exceptions; there was no convincing evidence that international stock markets were cointegrated in the period following the abolition of exchange controls in the UK. Corhay et al. (1995) studied the stock markets of Australia, Japan, Hong Kong, New Zealand and Singapore and found no evidence of a single stochastic trend for these countries. Kam et al. (1997) examined the relationships among stock prices in 18 national stock markets for the period 1961-92. The results suggested that there were only a small number of significant cointegrating vectors over the last three decades.

Huang et al. (2000) tried to find out the causality and cointegration among the stock markets of the US, Japan and the South China Growth Triangle (SCGT) region and found no cointegration among these markets except for that between Shanghai and Shenzhen. Rangvid (2001) analyzed the degree of convergence among major European stock markets and the results pointed towards a decreasing number of common stochastic trends influencing the stock markets.

Applied Finance Journal, Winter Blues, Stock Market Returns, Tunisian Stock Exchange, Trading Strategies, Stock Market Anomalies, Tunisian Stock Market, OLS Regression Method, Clinical Research, Risk Aversion.