Relationship between Exchange Rate and Stock Prices in India - an Empirical Analysis

11 Pages Posted: 7 Dec 2003

See all articles by Golaka C. Nath

Golaka C. Nath

Clearing Corporation of India

G. P. Samanta

Reserve Bank of India

Abstract

The dynamic linkage between exchange rate and stock prices has been subjected to extensive research for over a decade and attracted considerable attention from researchers worldwide during the Asian crisis of 1997-98. The issue is also important from the viewpoint of recent large cross-boarder movement of funds. In India the issue is also gaining importance in the liberalization era. With this background, the present study examines the causal relationship between returns in stock market and forex market in India. Using daily data from March 1993 to December 2002, we found that causal link is generally absent though in recent years there has been strong causal influence from stock market return to forex market return. The results, however, are tentative and we need further in-depth research to identify the causes and consequences of the findings.

Keywords: Market Integration/Interlinkage, Granger's Causality and Causality Tests, Johansen Cointegration test, NIFTY, INDIA, Rupee-US Dollar Exchnage Rate

JEL Classification: F30, F36, G15

Suggested Citation

Nath, Golaka C. and Samanta, G. P., Relationship between Exchange Rate and Stock Prices in India - an Empirical Analysis. Available at SSRN: https://ssrn.com/abstract=475823 or http://dx.doi.org/10.2139/ssrn.475823

Golaka C. Nath (Contact Author)

Clearing Corporation of India ( email )

FP No. 822 Collegel Lane
Off S K Bole Road. Agar Bazar Dadar (W)
Mumbai, MAHARASTRA 400028
India

G. P. Samanta

Reserve Bank of India ( email )

359, Anna Salai
Teynampet
Chennai, Tamil Nadu 600018
India

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