Title: Causal relationship between stock price and exchange rate: evidence for India
Authors: Manish Kumar
Addresses: IREVNA – A Division of CRISIL, The Oval, 10 & 12, Venkat Narayan Road, T. Nagar, Chennai 600017, India
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.
International Journal of Economic Policy in Emerging Economies, 2010 Vol.3 No.1, pp.85 - 101
Published online: 22 Apr 2010 *Full-text access for editors Access for subscribers Purchase this article Comment on this article