Interest Rates and Stock Movements in Three Major Asian Countries-India, China and Japan

Abstract

Globalization and financial sector reforms in India have ushered a vibrant change in Indian economic system. Current growth of India puts it’s among the largest and fastest growing economy of the world. Following the liberalization, Asian economy is becoming the hub of world economy. Sixty percent population resides in the Asian countries hence macroeconomic forces of Asia affects the world economy. World’s most populated countries viz. China and India are competing with the developed nations.

A dynamic capital market is an important Indicator of the financial system of any country as it plays a significant role in mobilizing savings and channeling them for productive purposes. Functioning of financial markets possess significant relationship with macroeconomic forces viz. Interest Rate, Inflation Rate, Money Supply, Exchange Rate and Real Supply. And the flow of money from developed countries towards Asian countries depends on the stock market performance.

Government institutions to regulate the stock markets also affect the efficiency of capital market. The study found that there exists a significant correlation between Sensex and interest rate as well as Nikkei and interest rate, Sensex having the highest and negative whereas Nikkie having positive. However, Shanghai Index was an exception having least correlation. This exception may have been contributed by various other factors, which need to be studied further.

Keywords: Sensex, Shanghai Index, Nikkie, Interst Rate

JEL Classification: E43, E44, E51, E52, E62, F01, F02, F30, F31, F32, F36