Relationship between equity market and currency market - an empirical analysis

Abstract

Abstract This paper studies the dynamic relatioship between stock prices and exchange rate in Indian context. We have used the recent data from May 2002 to April 2007. We have used correlograms, unit root tests, cointegration tests to test the long run relationship between these variables. We have performed Granger Causality tests on S&P CNX Nifty and INR per USD daily return series. We have found that there exists no long run relationship between stock prices and exchange rate, but we have found out that stock prices Granger Cause exchange rate. We feel that our results have strong implications for the institutional investors.