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Decomposing Time-Frequency Relationship between Interest Rates and Share Prices in India through Wavelets

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  • Tiwari, Aviral Kumar

Abstract

The study analyzed Granger-causality between interest rate (IR) and share prices (SP) for the India by using monthly data covering the period of 1990M1 to 2009M3. The time-frequency relationship between IR and SP was decomposed through continuous wavelet approach for the first time in the study. We found that for the Indian economy the causal and reverse causal relations between SP and IR vary across scale and period viz., during the late 1993 and early 1994, in 1-4 year scale, IR is lagging with cycle effects from SP, whereas during 1998-2001, in 8~12 year scale, IR is leading with cyclical effects on the SP. Further, results show that during 2003 to early 2005 (in 1~6 year scale) and again after late 2006 (in 9~14 year scale) IR is lagging and receiving anti-cyclical effects from SP.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39693.

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Date of creation: 07 Jun 2012
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Handle: RePEc:pra:mprapa:39693

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Related research

Keywords: cyclical effects; anti-cyclical effects; Granger-causality; phase difference; cross wavelets; wavelet coherency;

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  1. repec:ebl:ecbull:v:3:y:2004:i:44:p:1-14 is not listed on IDEAS
  2. Mehmet Dalkir, 2004. "A new approach to causality in the frequency domain," Economics Bulletin, AccessEcon, vol. 3(44), pages 1-14.
  3. Abdullah Almasri & Ghazi Shukur, 2003. "An illustration of the causality relation between government spending and revenue using wavelet analysis on Finnish data," Journal of Applied Statistics, Taylor & Francis Journals, vol. 30(5), pages 571-584.
  4. Cifter, Atilla & Ozun, Alper, 2007. "The Effects of International F/X Markets on Domestic Currencies Using Wavelet Networks: Evidence from Emerging Markets," MPRA Paper 2482, University Library of Munich, Germany.
  5. Gencay, Ramazan & Selcuk, Faruk, 2004. "Extreme value theory and Value-at-Risk: Relative performance in emerging markets," International Journal of Forecasting, Elsevier, vol. 20(2), pages 287-303.
  6. Luís Francisco Aguiar-Conraria & Maria Joana Soares & Nuno Azevedo, 2007. "Using Wavelets to decompose time-frequency economic relations," NIPE Working Papers 17/2007, NIPE - Universidade do Minho.
  7. Marco Gallegati, 2005. "A Wavelet Analysis of MENA Stock Markets," Finance 0512027, EconWPA.
  8. Cifter Atilla & Ozun Alper, 2008. "Estimating the Effects of Interest Rates on Share Prices in Turkey Using a Multi-Scale Causality Test," Review of Middle East Economics and Finance, De Gruyter, vol. 4(2), pages 68-79, April.
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