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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.

Suggested Citation

  • Tiwari, Aviral Kumar, 2012. "Decomposing Time-Frequency Relationship between Interest Rates and Share Prices in India through Wavelets," MPRA Paper 39693, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:39693
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    File URL: https://mpra.ub.uni-muenchen.de/39693/1/MPRA_paper_39693.pdf
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    References listed on IDEAS

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    3. Marco GALLEGATI, "undated". "A Wavelet Analysis of MENA stock markets," Middle East and North Africa 330400031, EcoMod.
    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. 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.
    6. 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.
    7. 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.
    8. Mehmet Dalkir, 2004. "A new approach to causality in the frequency domain," Economics Bulletin, AccessEcon, vol. 3(44), pages 1-14.
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    Cited by:

    1. Zied Ftiti & Aviral Tiwari & Amél Belanès & Khaled Guesmi, 2014. "Tests of Financial Market Contagion: Evolutionary Cospectral Analysis V.S. Wavelet Analysis," Working Papers 2014-577, Department of Research, Ipag Business School.
    2. Adil Yilmaz & Gazanfer Unal, 2016. "Co-movement analysis of Asian stock markets against FTSE100 and S&P 500: Wavelet-based approach," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-19, December.
    3. Zied Ftiti & Aviral Tiwari & Amél Belanès & Khaled Guesmi, 2015. "Tests of Financial Market Contagion: Evolutionary Cospectral Analysis Versus Wavelet Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 46(4), pages 575-611, December.
    4. Aviral Tiwari & Niyati Bhanja & Arif Dar & Olaolu Olayeni, 2015. "Analyzing Time–Frequency Based Co-movement in Inflation: Evidence from G-7 Countries," Computational Economics, Springer;Society for Computational Economics, vol. 45(1), pages 91-109, January.

    More about this item

    Keywords

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

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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