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

Manish Kumar

International Journal of Economic Policy in Emerging Economies, 2010, vol. 3, issue 1, 85-101

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.

Keywords: stock prices; exchange rates; bivariate causality; nonlinear Granger causality; India; stability; economic growth. (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijepee:v:3:y:2010:i:1:p:85-101

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