From Dragon to Elephant: Decoding Recent Shifts between China and India Stock Exchanges

This paper investigates the interconnectedness between the Chinese and Indian stock markets using Vector Autoregression (VAR) and Threshold ARCH (TARCH) model (VAR-VECH-TARCH). Our analysis focuses on the dynamic spillover effects, particularly their intensification following the aftermath of Covid-19 pandemic. The empirical results suggest a differentiated short-term volatility transmission. The Indian market exhibits lower dependence on its own past volatility and weaker short-term linkages with other markets compared to China and the US. However, in the long-term, cointegration is evident, implying interconnectedness across all three markets. Furthermore, our findings reveal a positive dynamic conditional correlation between the Chinese and Indian stock markets, reaching its peak during the pandemic period. Interestingly, this correlation converges to zero after July 2022, potentially reflecting a shift in investment strategies. These results contribute to a nuanced understanding of the recent investment shift from China (SHENZHENCSI) to India (BSESENSEX), highlighting the importance of recognizing the unique dynamics of each market and avoiding oversimplified interpretations.