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Time–frequency relationship between share prices and exchange rates in India: Evidence from continuous wavelets

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  • Aviral Tiwari
  • Niyati Bhanja
  • Arif Dar
  • Faridul Islam

Abstract

The paper examines the relationship between exchange rates and share prices using the wavelets approach, and more specifically the continuous wavelet power spectrum, cross-wavelet transform, and cross-wavelet coherency. Our results, based on Indian data, lend support to the traditional (Am Econ Rev 70:960–971, 1980 ) as well as the new portfolio hypothesis (Am Econ Rev 83:1356–1369, 1993 ), albeit over different time periods and across different time scales. The wavelet approach used in the paper has helped to uncover some interesting economic relationships within the time–frequency domain which have remained hidden thus far. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Aviral Tiwari & Niyati Bhanja & Arif Dar & Faridul Islam, 2015. "Time–frequency relationship between share prices and exchange rates in India: Evidence from continuous wavelets," Empirical Economics, Springer, vol. 48(2), pages 699-714, March.
    • Handle: RePEc:spr:empeco:v:48:y:2015:i:2:p:699-714
    DOI: 10.1007/s00181-014-0800-3
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    Citations

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    Cited by:

    1. Hudgins, David & Crowley, Patrick M., 2017. "Modelling a small open economy using a wavelet-based control model," Research Discussion Papers 32/2017, Bank of Finland.
    2. Hudgins, David & Crowley, Patrick M., 2017. "Modelling a small open economy using a wavelet-based control model," Bank of Finland Research Discussion Papers 32/2017, Bank of Finland.
    3. repec:zbw:bofrdp:2017_032 is not listed on IDEAS
    4. Crowley, Patrick M. & Hudgins, David, 2019. "U.S. Macroeconomic Policy Evaluation in an Open Economy Context using Wavelet Decomposed Optimal Control Methods," Bank of Finland Research Discussion Papers 11/2019, Bank of Finland.
    5. Patrick M. Crowley & David Hudgins, 2018. "What is the right balance between US monetary and fiscal policy? Explorations using simulated wavelet-based optimal tracking control," Empirical Economics, Springer, vol. 55(4), pages 1537-1568, December.
    6. Afshan, Sahar & Sharif, Arshian & Loganathan, Nanthakumar & Jammazi, Rania, 2018. "Time–frequency causality between stock prices and exchange rates: Further evidences from cointegration and wavelet analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 495(C), pages 225-244.
    7. Arshian Sharif & Shrabani Saha & Neil Campbell & Avik Sinha & Dalia M. Ibrahiem, 2020. "Tourism, environment and energy: an analysis for China," Current Issues in Tourism, Taylor & Francis Journals, vol. 23(23), pages 2930-2949, December.
    8. repec:zbw:bofrdp:2019_011 is not listed on IDEAS
    9. Crowley, Patrick M. & Hudgins, David, 2019. "U.S. Macroeconomic Policy Evaluation in an Open Economy Context using Wavelet Decomposed Optimal Control Methods," Research Discussion Papers 11/2019, Bank of Finland.
    10. João Martins, 2022. "Bond Yields Movement Similarities and Synchronization in the G7: A Time–Frequency Analysis," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 18(2), pages 189-214, July.
    11. Muhammad Haseeb & Tulus Suryanto & Nira Hariyatie Hartani & Kittisak Jermsittiparsert, 2020. "Nexus Between Globalization, Income Inequality and Human Development in Indonesian Economy: Evidence from Application of Partial and Multiple Wavelet Coherence," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 147(3), pages 723-745, February.
    12. Firouzi, Shahrokh & Wang, Xiangning, 2021. "The interrelationship between order flow, exchange rate, and the role of American economic news," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    13. Dejan Zivkov & Suzana Balaban & Jasmina Djuraskovic, 2018. "What Multiscale Approach Can Tell About the Nexus Between Exchange Rate and Stocks in the Major Emerging Markets?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(5), pages 491-512, October.
    14. Niyati Bhanja & Arif Dar, 2015. "“The beauty of gold is, it loves bad news”: evidence from three major gold consumers," Economic Change and Restructuring, Springer, vol. 48(3), pages 187-208, November.
    15. Chi-Wei Su & Xiao-Cui Yin & Ran Tao, 2018. "How do housing prices affect consumption in China? New evidence from a continuous wavelet analysis," PLOS ONE, Public Library of Science, vol. 13(9), pages 1-14, September.
    16. Concepción González-Concepción & María Candelaria Gil-Fariña & Celina Pestano-Gabino, 2018. "Wavelet power spectrum and cross-coherency of Spanish economic variables," Empirical Economics, Springer, vol. 55(2), pages 855-882, September.
    17. Patrick M. Crowley & David Hudgins, 2022. "Monetary policy objectives and economic outcomes: What can we learn from a wavelet‐based optimal control approach?," Manchester School, University of Manchester, vol. 90(2), pages 144-170, March.
    18. Arshian Sharif & Eyup Dogan & Ameenullah Aman & Hafizah Hammad Ahmad Khan & Isma Zaighum, 2020. "Rare disaster and renewable energy in the USA: new insights from wavelet coherence and rolling-window analysis," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 103(3), pages 2731-2755, September.
    19. Firouzi, Shahrokh & Wang, Xiangning, 2019. "A comparative study of exchange rates and order flow based on wavelet transform coherence and cross wavelet transform," Economic Modelling, Elsevier, vol. 82(C), pages 42-56.
    20. Sharma, Gagan Deep & Tiwari, Aviral Kumar & Talan, Gaurav & Jain, Mansi, 2021. "Revisiting the sustainable versus conventional investment dilemma in COVID-19 times," Energy Policy, Elsevier, vol. 156(C).
    21. Niyati Bhanja & Arif Billah Dar & Aviral Kumar Tiwari, 2015. "Exchange Rate and Monetary Fundamentals: Long Run Relationship Revisited," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(1), pages 33-54, March.
    22. repec:sek:ibmpro:3004657 is not listed on IDEAS
    23. Habimana, Olivier, 2016. "Oil price, exchange rate and consumer price co-movement: A continuous-wavelet analysis," MPRA Paper 71886, University Library of Munich, Germany.

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    More about this item

    Keywords

    Cyclical and anti-cyclical effects; Cross-wavelet transform; Wavelet coherency; India; G15; C40; E32; F21; F31;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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