Investigating the Dynamic Interlinkages between Exchange Rates and the NSE NIFTY Index

Vijay Victor; K. K. Dibin; Meenu Bhaskar; Farheen Naz

doi:10.3390/jrfm14010020

Investigating the Dynamic Interlinkages between Exchange Rates and the NSE NIFTY Index

Vijay Victor, K. K. Dibin^*, Meenu Bhaskar, Farheen Naz

^*Corresponding author for this work

T A Pai Management Institute, Manipal

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

Abstract

This study aims at examining the short-run and long-run dynamic linkages among exchange rates and stock market index in India through a structured cointegration and Granger causality tests. Daily exchange rates of USD, EUR, CNY, JPY, and GBP to INR along with the daily movement of NSE NIFTY for a period spanning 13 years from 6 September 2005 to 31 December 2018 were used for the analysis. The results reveal that there is no evidence for a stable long-run relationship between NSE NIFTY and the exchange rates under study. However, the VAR-based Granger causality test shows that USD, JPY, and CNY have short-run causal relationship with NSE NIFTY. The NSE NIFTY also seemed to have an influence on USD expressed in terms of Indian rupee. The impulse response analysis further supports the results of the Granger causality test and provides information on the time required for the NSE NIFTY index to recover from a shock caused by the fluctuation in exchange rates.

Original language	English
Article number	20
Journal	Journal of Risk and Financial Management
Volume	14
Issue number	1
DOIs	https://doi.org/10.3390/jrfm14010020
Publication status	Published - 01-2021

All Science Journal Classification (ASJC) codes

Accounting
Business, Management and Accounting (miscellaneous)
Finance
Economics and Econometrics

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10.3390/jrfm14010020

Cite this

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title = "Investigating the Dynamic Interlinkages between Exchange Rates and the NSE NIFTY Index",

abstract = "This study aims at examining the short-run and long-run dynamic linkages among exchange rates and stock market index in India through a structured cointegration and Granger causality tests. Daily exchange rates of USD, EUR, CNY, JPY, and GBP to INR along with the daily movement of NSE NIFTY for a period spanning 13 years from 6 September 2005 to 31 December 2018 were used for the analysis. The results reveal that there is no evidence for a stable long-run relationship between NSE NIFTY and the exchange rates under study. However, the VAR-based Granger causality test shows that USD, JPY, and CNY have short-run causal relationship with NSE NIFTY. The NSE NIFTY also seemed to have an influence on USD expressed in terms of Indian rupee. The impulse response analysis further supports the results of the Granger causality test and provides information on the time required for the NSE NIFTY index to recover from a shock caused by the fluctuation in exchange rates.",

author = "Vijay Victor and Dibin, \{K. K.\} and Meenu Bhaskar and Farheen Naz",

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AU - Victor, Vijay

AU - Dibin, K. K.

AU - Bhaskar, Meenu

AU - Naz, Farheen

PY - 2021/1

Y1 - 2021/1

N2 - This study aims at examining the short-run and long-run dynamic linkages among exchange rates and stock market index in India through a structured cointegration and Granger causality tests. Daily exchange rates of USD, EUR, CNY, JPY, and GBP to INR along with the daily movement of NSE NIFTY for a period spanning 13 years from 6 September 2005 to 31 December 2018 were used for the analysis. The results reveal that there is no evidence for a stable long-run relationship between NSE NIFTY and the exchange rates under study. However, the VAR-based Granger causality test shows that USD, JPY, and CNY have short-run causal relationship with NSE NIFTY. The NSE NIFTY also seemed to have an influence on USD expressed in terms of Indian rupee. The impulse response analysis further supports the results of the Granger causality test and provides information on the time required for the NSE NIFTY index to recover from a shock caused by the fluctuation in exchange rates.

AB - This study aims at examining the short-run and long-run dynamic linkages among exchange rates and stock market index in India through a structured cointegration and Granger causality tests. Daily exchange rates of USD, EUR, CNY, JPY, and GBP to INR along with the daily movement of NSE NIFTY for a period spanning 13 years from 6 September 2005 to 31 December 2018 were used for the analysis. The results reveal that there is no evidence for a stable long-run relationship between NSE NIFTY and the exchange rates under study. However, the VAR-based Granger causality test shows that USD, JPY, and CNY have short-run causal relationship with NSE NIFTY. The NSE NIFTY also seemed to have an influence on USD expressed in terms of Indian rupee. The impulse response analysis further supports the results of the Granger causality test and provides information on the time required for the NSE NIFTY index to recover from a shock caused by the fluctuation in exchange rates.

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Investigating the Dynamic Interlinkages between Exchange Rates and the NSE NIFTY Index

Abstract

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