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Exchange Rate and Stock Price Relationship: A Wavelet Analysis for India

Author

Listed:
  • Dar, Arif Billah

    (Institute of Management Technology, Ghaziabad)

  • Bhanja, Niyati

    (University of Petroleum and Energy Studies, Dehradun)

  • Tiwari, Aviral Kumar

    (IBS/IFHE, Hyderabad)

Abstract

This article attempts to examine whether stock and foreign exchange markets are related to each other using the methodology of wavelets. In particular, the relationship is analysed using wavelet correlation, wavelet cross-correlation, squared coherency, overall cohesion and scale by scale Granger causality test. While most of the earlier studies in India deny association between the two markets, our results reveal that the two markets are related however, at different time scales. Moreover, it is found that the Indian data are in agreement with the new portfolio approach at some lower scales and with the traditional approach at other lower time scales. Further, it is found that both traditional as well as new portfolio approach hold simultaneously at higher scales.

Suggested Citation

  • Dar, Arif Billah & Bhanja, Niyati & Tiwari, Aviral Kumar, 2014. "Exchange Rate and Stock Price Relationship: A Wavelet Analysis for India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 49(1), pages 125-142.
    • Handle: RePEc:dse:indecr:0087
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    Citations

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    Cited by:

    1. Saumitra Bhaduri, 2016. "Revisiting the Growth–Inflation Nexus: A Wavelet Analysis," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 45(1), pages 79-89, February.
    2. Aviral Kumar Tiwari & Anisul M. Islam & Md. Mohibul Islam, 2019. "Relationship between Exchange Rate and Equity Prices in an Emerging Market: A Continuous Wavelet-based Analysis for Bangladesh," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(2), pages 165-193, September.

    More about this item

    Keywords

    Exchange Rate; Stock Return; Wavelet Correlation; Wavelet Cross-Correlation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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