Investigating causal relationship between stock return with respect to exchange rate and FII: evidence from India
AbstractThe purpose of this paper is to investigate the relationship between macroeconomic parameters like Exchange rate and foreign institutional investment with stock returns in India, in particular at National Stock Exchange. I find that both stock returns and exchange rate are integrated of order one. The Engle–Granger Cointegration test is then performed, suggesting that there is not a long-run equilibrium relationship between stock returns and exchange rates at 5% significance level. Moreover, there is no evidence suggesting that there is any causality relationship from the nominal exchange rate to the stock returns. Furthermore, FII data is found to be I(0) i.e. It doesn’t have a unit root at conventional level. It also gives positive unidirectional Granger causality results i.e. stock returns Granger cause FII. No reverse causality is seen even after inserting a structural break in 2003, as some of the researchers suggest.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15793.
Date of creation: 01 May 2009
Date of revision:
Unit root test; Cointegration; Granger causality; Exchange rate; Stock return; FII;
Find related papers by JEL classification:
- C0 - Mathematical and Quantitative Methods - - General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Foreign Direct Investment and Growth: An Empiricial Investigation Based on Cross-Country Comparison,"
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- Hooi Hooi Lean & Paresh Narayan & Russell Smyth, 2011. "Exchange Rate And Stock Price Interaction In Major Asian Markets: Evidence For Individual Countries And Panels Allowing For Structural Breaks," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 56(02), pages 255-277.
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- Inoue, Takeshi, 2008. "The causal relationships in mean and variance between stock returns and foreign institutional investment in India," IDE Discussion Papers 180, Institute of Developing Economies, Japan External Trade Organization(JETRO).
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