The objective of this study is to analyze if there has been any impact of recession on the long run relationship amongst the Indian & the American Stock Market. To find the presence & the extent of co movement, Cointegration analysis of Indian and the American stock markets has been made before and after recession using Johansen test of Cointegration. The results of the study reveal that there has been no impact of recession on the long run relationship. No evidence of long run causality has been found before and after recession. However, the short run causality, has changed after recession. Before recession, the two markets shared a feedback effect on each other. But after recession, only unidirectional causality has been seen running from US stock market to the Indian stock market.

For an investor, the study has provided useful insight for diversifying the portfolio between the two stock markets since the two markets do not show any evidence of moving in the same direction in long run. An investor, thus, by diversifying his portfolio between the two markets in long run can minimize the portfolio risk, which is most important investment consideration for any investor.

Keywords: Cointegation; Vector Autoregression; Unrestricted VAR, Granger Causality