Global Journal of Management and Business Research, A: Administration and Management, Volume 21 Issue 12

(2012) concluded that investors could diversify their portfolios to increase their returns while managing the risk, which has been adopted for the present study. II. R eview of L iterature The inter-relationship between national stock markets has been the subject of several papers in the general area of investment management and international finance research. Apart from exploring and presenting the relationship between national stock markets, these papers have helped develop essential tools necessary for the statistical analysis of correlation structure. Numerous studies have been conducted to explore the linkages among various financial markets around the world. Integration of world markets has provided many opportunities to the investors to look for different investments options across world markets to manage risk and returns. Diversification is a strategy to manage the risk that investors can use by understanding other stock markets globally. As risk diversification is the primary concern for most investors, they tend to look into the possibility of widening their investment choices across the countries or creating a region-based investment strategy. This requires the understanding of regional and global linkages of stock markets. Abbas Valadkhani et al. (2008) investigated the relationship among the selected 13 stock markets returns. To understand the co-movements, the authors deployed principle components analysis and maximum likelihood methods on the monthly data from 1987 to 2007. The authors found that stock markets in the Asian countries are correlated highly, and factor analysis proved a well-defined common factor, and both the methods like ML and PC have provided similar results. Alan Harper and Zhenhu Jin (2012) study was conducted to find the linkage between Indian stock market returns with its eleven major trading partners. Monthly stock data for 11 years, i.e., 2000 to 2010, was used for analysis and found that investors can enhance their returns by managing the risks in India's trading partners' country's stock markets. Principle component analysis has been used and inferred that Indian stock returns are aligned with its trading partners. Hence, investors can diversify their investments by choosing the country's stock indices to improve their returns and minimize risk. Maran Marimuthu (2010) has examined the co- movements of the Asian markets with developed markets by considering Malaysian, Indian, Chinese, the US, and the UK equity markets using Statistical models like Johansen multivariate cointegration, Vector Error Correction Model, and Granger causality test. The author found that there is a long-run relationship among the regional markets. Malaysia and India Granger cause each other. There is no role of China in the regional market. In addition, shocks in one country seem to affect other countries briefly in the Asian context. Maran has concluded that the US market is still the main influential factor in the Asian markets. Wen-Chung Guoa and Hsiu-Ting Shihb (2008) investigated the co- movement of stock prices and its association with herd behavior during a period of high-tech mania using daily equity returns for each stock. The analysis consists of return dispersion, volatility dispersion, and the directional co-movement of stock prices for a sample of 443 stocks from January 1996 to December 2000, covering industries like electronics, the Internet, communication, etc., semiconductors. The authors found that both return dispersion and volatility dispersion correlate with extreme market movements for high-tech stocks. It was found that herding, measured by directional co-movement, is more prevalent in high- tech industries than traditional economic industries. It also found an asymmetric result that herding has tremendous significance during extreme up markets. Tak-Kee Hui (2005) studied the possibility of Singaporean investors diversifying into US and Asia Pacific markets. Factor analysis was performed on weekly data for the ten stock market indices, covering the period January 1990 to June 2001 to investigate the systematic covariation of the stock market returns to select markets for a Singaporean investor to invest in. Tak suggested that Singaporean investors or portfolio managers select relatively large and well-developed markets for risk diversification and invest in the USA, Australia, and Japan markets. In addition to that, there would not be any significant risk reduction by investing in the Hong Kong, Philippines, South Korea, Thailand, and Singapore markets simultaneously. Therefore, a Singaporean investor can invest in the USA, Australia, Japan, and Taiwan. Kivilcim Metin and Gulnur Muradoglu (2001) focus is forecasting stock returns in emerging markets using their interrelations to significant world stock exchanges and regional counterparts by using international co-movements for weekly stock prices by employing the Engle–Granger (1987) two-step cointegration technique. Kivilcim et al. found that unconditional variances were much higher for emerging markets than their mature counterparts. All national markets are cointegrated with the world leaders and other emerging markets according to their geographical proximity. Jorg Bley (2007) focused on determining the contemporary interactions of the stock markets of Bahrain, Egypt, Israel, Jordan, Kuwait, Lebanon, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Tunisia, Turkey, and the United Arab Emirates by using daily historical prices for a period ranging from 1/2000 to 12/2004. The data series is divided into two sub-periods, the first period includes 130 weekly observations, and the second period covers the subsequent 128 weeks. The author found that changing stock market dynamics 14 Global Journal of Management and Business Research Volume XXI Issue XII Version I Year 2021 ( ) A © 2021 Global Journals Design of Portfolio using Multivariate Analysis