Examination of Stock Market Returns Viz-a-Viz Utility Price and Exchange Rate Movements: Evidences from India after Credit Crisis

Abstract

This paper constitutes an analysis on Indian stock market returns. The conducted study probes the nexus between returns on four stock market indices, namely Sensex (BSE 30), Energy Index (BSE ENERGY), Oil and Gas Index (BSE OIL & GAS), and Capital Goods (BSE CG), and returns on traded energy prices, traded gas prices, global oil prices, and rupee-dollar exchange rates, based on weekly data from June 9, 2008 to May 16, 2014. Generalized autoregressive conditional heteroskedasticity (GARCH) and exponential GARCH (EGARCH) models have been used to examine the impacts of utility price and exchange rate movements on mentioned stock market indices. The study have established that movements of traded energy price, global oil price, and exchange rate have significant impacts on the movements of considered stock market indices, and surprisingly movements in gas price have no significant impact in any of the indices. Span of the study has been selected based on the establishment of Indian Energy Exchange, and in order to rule out the possibilities of volatility clustering, which may possibly probe biasness in the results, data pertaining to lower frequency range have been selected. Data for this study have been collected from Reserve Bank of India, Indian Energy Exchange, Bombay Stock Exchange, Multi Commodity Exchange, and U.S. Energy Information Administration.