This paper examines the relationship between BSE Sensex and three other developed markets in the frequency domain. Cross-spectral methods, which are important in discovering and interpreting the relationships between economic variables, are used to analyze the relationships between different price series. Cross-spectral methods, developed using Fourier techniques, give valuable information regarding the correlation structure in the frequency domain. This paper applies these methods to study the lead-lag relationship between BSE Sensex and other international markets. The results show no significant co-movement of Indian stock prices with developed market prices at lower frequencies; and in the long run, the developed stock markets seem to lead Indian market. However, in the short run, some evidence of behavioral similarities is observed.

Spectral analysis of time series gives information about the time series in the frequency domain. Several studies based on spectral analysis try to analyze the time series in the frequency domain, which helps in obtaining valuable information that is not available in the usual time domain analysis. The use of spectral analysis as a tool to understand the dynamics of stock prices is not a new area of study. In frequency domain analysis, the disaggregation of a time series into its different periodic components allows us to determine the relative importance of different components. This paper uses the existing spectral methods to analyze the behavior of stock markets. As we are mainly dealing with more than one market, we will be interested in the lead-lag relationship between the markets.

The paper is structured as follows: it presents a brief review of the related literature, followed by description of the tools used in this analysis and their application to stock market prices. Subsequently, the results are discussed, and finally, the conclusion is offered.

Applied Economics Journal, Analysis, BSE Sensex, Dow Jones Industrial Average (DJIA) index (USA), FTSE 100 index (UK), Nikkei 225 of Tokyo Stock Exchange (Japan), NASDAQ (USA), Lead-Lag, Stock Returns Using Spectral Methods.