Abstract
The aim of the research paper is to analyse the impact of crude oil price and exchange rate volatility affect the performance of stock return in India. Auto Regressive Distributed Lag Bound Test Modelhelps to analyse the dynamic relationship between oil prices, exchange rate and stock market return in India during 1995 to 2018.The estimated results suggest that there exist along run co-integrationor relationship between crude oil price, exchange rate and Indian stock market return. The impact of crude oil rice and exchange rate volatility significantly negative contribution to the performance of Indian stock market. The Error Correction Model (ECM) provides a framework for establishing links between the short-run and long-run approaches to econometric modelling. The equilibrium correlation coefficient is estimated -0.85 is highly significant at one percent. This result confirm the existence of bound test. The coefficient of ECM is highly significant with negative sign, which confirms the result of Bound Test for co-integration. In short the speed of adjustment towards long run equilibrium at the rate of 85 percent monthly.
Highlights
Stock markets are generally considered as one of the indicators of the health of the economy
NIFTY return is taken as Dependent Variable (DV) while exchange rate and crude oil price are taken as Independent Variable (IV)
The Real Effective Exchange Rate (REER) index has been considered as a proxy of exchange rate
Summary
Stock markets are generally considered as one of the indicators of the health of the economy. Any upside or downside in the economy affect the stock market performance.India's popular stock exchanges are the Bombay Stock Exchange and National Stock Exchange. The purpose of stock exchange is to facilitates the exchange of securities and other financial instruments between buyers and sellers and reduce the risk of investing. An ideal capital market is one where finance is available at reasonable cost. The process of economic development is facilitated by the existence of a wellfunctioning capital market. If the market goes up, it means the economy is doing well. That the people in the country are generally doing well. Indian capital market has seen many ups and down and its one of the fastest growing capital market of the world which attract investors from all part of the world
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