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Causal relationship between stock price and exchange rate: evidence for India

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  • Manish Kumar

Abstract

The purpose of this study is to investigate the long and short-run relation between stock index and exchange rates for India. The study uses cointegration methodology to test for the long-run relationship. Empirical results suggest that there is no long-run relationship between them. Furthermore, the study examines the causal relationship between two series using linear and non-linear Granger causality tests. The non-linear causality is investigated using noisy Mackey-Glass model. The results of both the causality tests reveal evidence of bi-directional relationship between stock index and exchange rates. The findings imply that regulators can consider developments in these two markets into account to promote stability and economic growth.

Suggested Citation

  • Manish Kumar, 2010. "Causal relationship between stock price and exchange rate: evidence for India," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 3(1), pages 85-101.
    • Handle: RePEc:ids:ijepee:v:3:y:2010:i:1:p:85-101
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    Citations

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    Cited by:

    1. Sushil Kumar Rai & Akhilesh Kumar Sharma, 2023. "Forecasting Exchange Rate Volatility In India Under Univariate And Multivariate Analysis," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(1), pages 175-190, March.
    2. Tshikalange, Mulanga & Bonga-Bonga, Lumengo, 2023. "The determinants of the dynamic correlation between foreign exchange and equity markets: Cross-Country comparisons," MPRA Paper 118401, University Library of Munich, Germany.
    3. Van-Hop Nguyen, 2019. "Dynamics Between Exchange Rates And Stock Prices: Evidence From Developed And Emerging Markets," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 13(1), pages 73-84.

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