Sunday, March 21, 2010
Does a stock exchange in one country is related to exchanges in other countries?
On a purely statistical term ,return on one exchange over a certain span of time can be regressed with other to find out the co-relation between them. This can be done graphically also, where we can draw the return over a period of time after selecting a basis.
Formula for Daily return = log (P i / P i-1) where
P i = Stock price at ith day
P i-1= Stock price at i-1 th day
Using the above formula the return I regressed Nifty 50 with Hang seng Index, Nikkei 225, Straits Times, S&P 500 for last 5 yrs and the co-relation coeff. were found to be as: