Decomposition of international economic linkages among top five GDP holder countries’ stock markets after the spread of Covid-19

Purpose: The spread of COVID-19 has a dramatic impact on financial markets across all over the world. It has created an unprecedented level of risk, resultant in short term losses to investors during this period. Therefore, this paper is an attempt to investigate the international economic linkages between the Indian stock market and stock markets of selected countries during the pandemic period. Design/methodology/approach: The objectives of the study have been completed with the help of daily closing index data collected for the period of 1st February, 2020 to 31st March, 2021. The selected countries namely USA, China, Japan, Germany and India are the top five GDP holder countries according to the IMF world economic outlook report of 2020. The results were further analyzed with the help of Johansen co-integration test, Vector error correction method, granger causality test, variance decomposition and impulse response test. Findings: The results of the study indicates that the Indian stock market is co-integrated with other developed countries' stock me kets in the long run, and there exists a significant unidirectional relationship with stock indices of USA, Japan and Germany. The results suggests that still there is scope for portfolio diversification for investors in other countries. Originality/Value: The study offers unique insights into the economic interconnections of the top five GDP-holder countries throughout the pandemic period, as well as implications for portfolio diversification for investors in other countries.