Abstract
This paper is an attempt to examine the empirical relation between exchange rate and Indian stock price using the monthly time series data over the period 2011-2021. Johansen’s cointegration test has been applied to test the long run relationship between exchange rate and stock price. Both the trace and Maximum Eigenvalue test statistic are less than the 0.05 critical values. Thus, the null hypothesis of no cointegration is accepted and no long run stable equilibrium relation was found to exist between exchange rate and stock price. The analysis further reveals the prevalence of unidirectional causal relationship from stock price to exchange rate by employing the Granger causality test. Thus, the study is found to support the Stock oriented model. So, regulators can predict the trends in exchange rate from the past values of stock prices which can induce profitable trading in the currency market. This study would be of immense importance for various stakeholders like investors, practitioners and policy makers to reduce the information symmetry owing to the volatile nature of the two variables.
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