Abstract
We examine the causal relation between oil prices, exchange rate and stock prices in the Indian context using the Hiemstra and Jones (1994) nonlinear Granger causality and nonlinear ARDL tests. The results of Hiemstra and Jones (1994) causality show a strong evidence of bidirectional nonlinear relation between oil and exchange rate, and between oil and stock price. The results further reveal significant unidirectional nonlinear causality from exchange rate to stock prices. The results of the NARDL test reveal that previous month positive and negative shocks in oil prices have positive (negative) significant impact on exchange rate (stock prices). In both the cases, the positive previous month shock has more pronounced effect than the negative shocks, confirming the asymmetric impact of oil prices on exchange rates and stock prices. To account for the persistence in the variance of oil, exchange rate and stock prices, we consider residuals obtained from GARCH (1,1) filtered model and conclude that our findings are consistently robust.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
