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Effect of Exchange Rate volatility and inflation on stock market returns Dynamics - evidence from India

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  • Nenavath Sreenu

    (Maulana Azad National Institute of Technology (MANIT))

Abstract

The present paper examines the impact of the exchange rate and inflation rate on volatility in market returns dynamics. The paper used annual inflation and exchange rate data from RBI. The market returns have been computed from January 2000 to June 2020 and also the data taken from the stock market index. The study used the autoregressive distributed lag (ARDL), GARCH and the corresponding Error Correction Model (ECM) used for the investigation of the effect on stock market returns volatility. Further, the paper determines the long- and short-run relationship between the stock market returns and exchange rate similarly, the stock market returns and rate of inflation. The outcome of the research shows that there is exist a significant relationship in long term between market returns and rate of exchange and the short-run term relationship shows the negative effects on the stock market returns. The originality of the paper is that for the long memory and the property of variables exits to determine the significant value and, making it a desirable feature of which investors can take advantage.

Suggested Citation

  • Nenavath Sreenu, 2023. "Effect of Exchange Rate volatility and inflation on stock market returns Dynamics - evidence from India," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 14(3), pages 836-843, June.
    • Handle: RePEc:spr:ijsaem:v:14:y:2023:i:3:d:10.1007_s13198-023-01914-3
    DOI: 10.1007/s13198-023-01914-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Market returns; Exchange rate; Inflation; ARDL and GARCH;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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