The Granger Causality Study Between Exchange Rate And Stock Prices In The Indian Context

14 Pages Posted: 17 Jan 2020

See all articles by Amartya Prem Rajamalla

Amartya Prem Rajamalla

Indian Institute of Technology Madras, Students

Kushal Kumar Reddy

Indian Institute of Technology (IIT), Madras, Students

Date Written: November 5, 2019

Abstract

This paper identifies the dynamic linkage between stock rate indices and exchange rate in the Indian Market for the last 26 years. There has not been such a significant and detailed study on this in an Indian context, and we have extensively studied the granger causality between different industrial sector-wise stock market indices with the US Dollar - Indian Rupee exchange rate. The regression is split adequately into phases of economic significance, and daily data is studied. We do not find any bidirectional causality in most of the sectors during all periods of study except during 2014-2019, where many sectors including Auto, PSU, Metal and Manufacturing, show a bidirectional dependance. This paper further links the empirical findings to the possible scenario of the economy that may have caused the relation for the sector during that period. These results and discussions have few significant implications for policymakers, stock analysts and foreign investors.

Keywords: Causal relationship, Stock market, Exchange rate, Industrial sectors

JEL Classification: G10

Suggested Citation

Rajamalla, Amartya Prem and Kumar Reddy, Kushal, The Granger Causality Study Between Exchange Rate And Stock Prices In The Indian Context (November 5, 2019). Available at SSRN: https://ssrn.com/abstract=3481432 or http://dx.doi.org/10.2139/ssrn.3481432

Amartya Prem Rajamalla

Indian Institute of Technology Madras, Students ( email )

Chennai, Tamil Nadu
India
08639772117 (Phone)
600036 (Fax)

Kushal Kumar Reddy (Contact Author)

Indian Institute of Technology (IIT), Madras, Students ( email )

Pradesh
India
08056021795 (Phone)
600042 (Fax)

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