An Exponential GARCH Approach to the Effect of Impulsiveness of Euro on Indian Stock Market
This paper examines the effect of impulsiveness of euro on Indian stock market. In order to examine the problem, we select rupee-euro exchange rates and S&P CNX NIFTY and BSE30 SENSEX to represent stock price. We select euro as it considered as second most widely used currency at the international level after dollar. The data are collected on both daily bases over a period of 3-Apr-2007 to 30-Mar-2012. The daily data on rupee-euro exchange rates are collected from Handbook of Statistics on Indian Economy (www.rbi.org.in), while the daily data on S&P CNX NIFTY and BSE30 SENSEX are collected from the official website of National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) respectively. The statistical and time series propertiesof each and every variable have examined using the conventional unit root such as ADF and PP test. Adopting a generalized autoregressive conditional heteroskedasticity (GARCH) and exponential GARCH (EGARCH) model, the study suggests a negative relationship between exchange rate and stock prices in India. Even though India is a major trade partner of European Union, the study couldn't find any significant statistical effect of fluctuations in Euro-rupee exchange rates on stock prices. The study also reveals that shocks to exchange rate have symmetric effect on stock prices and exchange rate fluctuations have permanent effects on stock price volatility in India.
2. Theoretical Explanations
3. Data and Methodology