An empirical study of international portfolio diversification

Indian stock market has undergone a significant transformation after globalization. The most significant changes which has happened in the Indian stock Market that FII has been allowed to invest in the Indian market. Currently the extent of stock price volatility is being influenced by integration between the domestic and international capital markets as well as the regulatory framework governing the stock market. In India, now stock prices are being influenced by other international market. In this study an attempt has been made to find out the degree of association among the various markets. In a view to understand the integration of various indices a study was undertaken. In this study, month-wise closing prices of BSE-Sensex, NYSE, NASDAQ, S&P500, Hang Seng, Nikkei225, SSE Composite Index, FTSE100,IPC,BOVESPA,CAC 40,FTSE/JSE, DOW JONES, STI,DAX was selected. This article examines the return and degree of association of the various indices with help of statistics. Finally we find some evidence of association among the various stock markets and we applied Markowitz mean variance approach to determine optimal portfolio consisting of major market indices.