Analyzing time–frequency relationship between interest rate, stock price and exchange rate through continuous wavelet

Alin Marius Andrieș, Iulian Ihnatov () and Aviral Tiwari

Economic Modelling, 2014, vol. 41, issue C, 227-238

Abstract: In this study we investigate and identify the patterns of co-movement of interest rate, stock price and exchange rate in India in the period between July 1997 and December 2010 using the cross-wavelet power, the cross-wavelet coherency, and the phase difference methodologies. Our empirical findings suggest that stock prices, exchange rates and interest rates are linked. The cross wavelet results show that stock price movements are lagging both to the exchange rate and interest rate fluctuations. The interest rate lead over the stock price movements is even clearer, especially after 2006, and it suggests that the stock market follows the interest rate signals. Comparing results of WTC and XWT, we find very clear results of phase difference of lead–lag relationship between stock prices, exchange rates and interest rates.

Keywords: Cyclical effects; Anti-cyclical effects; Granger-causality; Phase difference; Cross wavelets; Wavelet coherence (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:41:y:2014:i:c:p:227-238

DOI: 10.1016/j.econmod.2014.05.013

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