AN EMPIRICAL STUDY ON IMPACT OF EXCHANGE RATES ON INDIAN STOCK MARKET

Abstract

For any investor in the stock market supposed to consider lot of internal and external factors before he invest into stock market. Based on that, one of the external factors the currency exchange rates how it is influence the stock market is the main aim of this study. Four review of literatures done and identified the research gap. The study covers five variables i.e. Sensex, UDS, EURO, GBP and YEN for a period of 19 years i.e., from January 2000 to March 2019 daily prices collected. The main objectives for the study are to check the interdependency and correlations of stock market and currency exchange rates. Descriptive statistics finds that selected data and errors are not normally distributed. Augmented Dickey Fuller test statistics results indicates that, all the selected variables will be stationary at first difference, hence considered log returns for the same. The multiple regression analysis resulted that, here is no significant impact of selected currencies exchange rates to Indian stock exchange. To run Granger Causality test identified 8 lag structure required and resulted that there is no unidirectional causality influence between the variables, but bidirectional causality between USD and Sensex except the currency exchange of INR/USD no other currency influence the Stock market. However, remaining all selected four currency does cause each other, i.e. bidirectional. The correction coefficient test resulted that, there is no correlation or negligible correlation between Indian stock market and selected four currency exchange rates. However, there are positive correlations among the four currencies.