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On the Relationship between Stock Prices and Exchange Rates for India

Author

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  • Paresh Kumar Narayan

    (School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, 221 Burwood Highway, Burwood, Victoria 3125, Australia)

Abstract

In this paper, we apply several variants of the EGARCH model to examine the role of depreciation of the Indian rupee on India's stock market returns using daily data. Our findings suggest that volatility persistence has been high; depreciation of the rupee has increased volatility; and asymmetric volatility confirms that negative shocks generate more volatility than positive shocks. We also find that an appreciation of the Indian rupee over the 2002 to 2006 has generated more returns and less volatility.

Suggested Citation

  • Paresh Kumar Narayan, 2009. "On the Relationship between Stock Prices and Exchange Rates for India," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 289-308.
    • Handle: RePEc:wsi:rpbfmp:v:12:y:2009:i:02:n:s0219091509001630
    DOI: 10.1142/S0219091509001630
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    References listed on IDEAS

    as
    1. WenShwo Fang & Stephen M. Miller, 2002. "Dynamic Effects of Currency Depreciation on Stock Market Returns during the Asian Financial Crisis," Working papers 2002-31, University of Connecticut, Department of Economics.
    2. International Monetary Fund, 2006. "India: Selected Issues," IMF Staff Country Reports 2006/056, International Monetary Fund.
    3. WenShwo Fang & Stephen M. Miller, 2002. "Currency Depreciation and Korean Stock Market Performance during the Asian Financial Crisis," Working papers 2002-30, University of Connecticut, Department of Economics.
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    Cited by:

    1. Vanita Tripathi & Ritika Seth, 2014. "Stock Market Performance and Macroeconomic Factors: The Study of Indian Equity Market," Global Business Review, International Management Institute, vol. 15(2), pages 291-316, June.
    2. Jing Nie & Zhichao Zhang & Zhuang Zhang & Si Zhou, 2015. "Currency Exposure in China under the New Exchange Rate Regime: National Level Evidence," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 23(3), pages 97-109, May.
    3. Thanh, Su Dinh & Canh, Nguyen Phuc & Maiti, Moinak, 2020. "Asymmetric effects of unanticipated monetary shocks on stock prices: Emerging market evidence," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 40-55.
    4. Nicolaas Groenewold & James E.H. Paterson, 2013. "Stock Prices and Exchange Rates in Australia: Are Commodity Prices the Missing Link?," Australian Economic Papers, Wiley Blackwell, vol. 52(3-4), pages 159-170, December.
    5. Narayan, Paresh Kumar & Ahmed, Huson Ali, 2014. "Importance of skewness in decision making: Evidence from the Indian stock exchange," Global Finance Journal, Elsevier, vol. 25(3), pages 260-269.

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    More about this item

    Keywords

    EGARCH; depreciation; appreciation; volatility; stock returns; JEL classifications: F30;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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