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Causality
Between Stock Prices and Exchange Rates: Some Evidence for India
-- M
Venkateshwarlu and Rishabh Tiwari
This
paper is an attempt to examine the relationship between stock
prices and exchange rates. By applying the techniques of Unit-root
test, Co-integration and the Granger causality test, the bivariate
causality between stock prices and exchange rates is analyzed.
In this study the daily closing values of two popular stock
price indices (BSE Sensex, NSE Nifty) and Indian Rupee Exchange
Rates are used for the period January 1, 1995 to December
31, 2002. The results indicate that although there exists
no long-term causality between the stock market and rupee
value, for the period of one year there has been a noticeable
and statistically significant causality from stock indices
to rupee value. Also, there has been significant reverse causality
from rupee value to stock market for some years. The paper
also analyzes the causality for still shorter intervals i.e.,
for a period of six months and it was noticed that even though
there is no consistent relationship between the two markets,
over the recent past, there has been a significant causality
from currency market to stock markets.
©
2005 IUP. All Rights Reserved.
Foreign
Institutional Investment Flows and Equity Returns in India
-- Khan Masood Ahmad, Shahid Ashraf and Shahid Ahmed
This
paper examines the relationship between foreign institutional
investment and stock returns in India during 2002-04. The
Foreign Institutional Investment as a percentage of market
capitalization and floating stock has been improving over
the years. Using NSE Nifty and FII capital flows to the equity
market, Granger-causality, Cross-correlation method and GARCH
have been applied to analyze the static and dynamic relationship
between FII flows and Nifty. Granger-causality shows a unidirectional
relationship, indicating that equity returns cause FII flows,
whereas Cross-correlation method shows some evidence of contemporaneous
and bi-directional causality. This is an interesting result
not reported earlier, and it is possible that the impact may
be strong at the level of individual stock prices. The Foreign
Institutional Investors (FIIs) seem to be positive feedback
traders, as there is a strong positive relationship with lagged
daily returns, and the results also show a significant relationship
with future equity returns. Individually, there is significant
volatility clustering in FII investments and Nifty series
but there is no transmission or destabilizing effect. It is
suggested that information on trade by FIIs must be made publicly
available more speedily.
©
2005 IUP. All Rights Reserved.
Exchange
Rates and Stock Prices in South Asia: Evidence from Granger
Causality Tests
-- Paresh Kumar
Narayan and Russell Smyth
This
paper uses the Gregory and Hansen (1996) cointegration test
and the bounds testing approach to cointegration, which was
developed by Pesaran et al.(2001) to examine the existence
of long-run relationship and Granger F-tests to examine any
causal relationship between exchange rates and stock prices
in four South Asian countries. The study finds that there
is no long-run equilibrium relationship between these two
financial variables in three of the four countries studied.
Exchange rates, Granger-cause stock prices in India in both
the long-run and short-run and in Pakistan in the short-run.
©
2005 IUP. All Rights Reserved.
Decomposition
of the Otcei Bid-Ask Spread
--
C Mukhopadhyay and Jyothi G Rao
This
study compares the estimates of components of spread obtained
from two different methodologies viz., Stoll (1989) and Huang
and Stoll (1997). It applies these two methodologies on Over-The-Counter
Exchange of India, which is a quote-driven market in India
comprising of small and medium size companies. This is the
first study of its kind done with the OTCEI data. The estimates
obtained from these two methodologies present slightly different
scenarios of economics of market-making in OTCEI. An in-depth
study of trading policies, however, suggests that estimates
of components of spread obtained from Huang and Stoll methodology
are more in tune with market microstructure of OTCEI, than
estimates of components of spread obtained from Stoll's methodology.
This article helps one to understand the economics of market-making
in OTCEI and its trading policies despite the slightly disparate
findings of the two methodologies.
©
2005 IUP. All Rights Reserved.
An
Empirical Study of the Factors Influencing the Capital Structure
of Indian Commercial Banks
--
Mitali Sen and J K Pattanayak
This
paper examines the issue of corporate financial structure
and its determinants by studying the association between observed
leverage and a set of explanatory variables. The present study
attempts to go beyond previous studies that are mainly confined
to manufacturing firms by studying the capital structure choice
of Indian banking sector. It makes an attempt to determine
the critical factors of capital structure by using an exploratory
factor analysis on a sample of 82 Indian Banks comprising
of public sector banks, private and foreign banks for a period
of seven years from 1996 to 2002. The results of the study
suggest that liquidity, size, efficiency and growth, quality
of assets, profitability and service diversification are the
most critical factors influencing the capital structure of
the Indian banking firms.
©
2005 IUP. All Rights Reserved.
Is
Bank Rate Irrelevant ?
-- Arun Kumar Misra
Bank
Rate is generally considered as the primary instrument of
monetary control. However, with the market-driven interest
rate policy and advent of liquidity adjustment measures, its
efficacy has been questioned. In this article, an attempt
has been made to articulate the relevance of Bank Rate vis-à-vis
other instruments of monetary influence.
©
2005 IUP. All Rights Reserved.
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