Abstract
This paper examines the extent of integration between foreign exchange and stock markets in India during the liberalisation era. The database cover daily observations on stock price index and exchange rate of Indian Rupee for a period of ten financial years from April 1993 to March 2003. Empirical analysis is carried out by employing two different methodology, first, Granger's causality test in vector auto-regression (VAR) framework and second, the Geweke's feedback measures. Empirical results are no robust on choice of methodology. While, results in VAR framework indicate very poor causal link between returns in two markets in most of the financial years, the Geweke's feedback measures detect strong causal relationship in each financial year. Thus, there is a need to undertake a rigorous investigation to settle the status on integration between two markets considered here. Future research may also focus on identifying the possible reasons as to why the extent of market integration changes over time.
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