Investigating causal relationship between stock return with respect to exchange rate and FII: evidence from India
The 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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- Ozturk, Ilhan & Kalyoncu, Huseyin, 2007.
"Foreign Direct Investment and Growth: An Empirical 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.
- repec:pid:journl:v:41:y:2002:i:4:p:535-550 is not listed on IDEAS
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