Impact of Stock Market on FOREX: An Empirical Study

This article investigates the interaction between stock market and foreign exchange market. Stock market is represented by stock index NIFTY, which represents the weighted average of 50 Indian company stocks in 12 sectors. Foreign exchange market is represented by US dollar price. Required data collected between Jan 2005 to Jul 2018. Variables are tested for stationary and found at 1st difference. Both Trace test and Max Eigen value indicates two co-integration equation in our model. Johansen cointegration. shows that Long run association between USD and NIFTY exists. VECM results shows that there is no short run causality. Wald test identifies existence of short run relationship. There is no evidence of autocorrelation. Granger-causality test shows that there is a bi-directional causality between exchange rate and stock index in both long run and short run.