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

Arif Dar (), Niyati Bhanja () and Aviral Tiwari ()

Indian Economic Review, 2014, vol. 49, issue 1, 125-142

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.

Keywords: Exchange Rate; Stock Return; Wavelet Correlation; Wavelet Cross-Correlation (search for similar items in EconPapers)
JEL-codes: C32 F31 (search for similar items in EconPapers)
Date: 2014
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Indian Economic Review is currently edited by Pami Dua (Editor) & Ram Singh (Associate Editor) and Sunil Kanwar

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