FX Volatility Impact on Indian Stock Market: An Empirical Investigation

Aravind, M

doi:10.1177/0972262917716760

Cited by 11 publications

(16 citation statements)

References 24 publications

(23 reference statements)

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“…Moreover, the conducted research confirmed the interrelationship between a currency market volatility and a stock market volatility, and that the volatility shocks between the stock market and currency market are quite persistent (Aravind, 2017).…”

Section: Stock Vs Forex Tradingsupporting

confidence: 66%

The preferences in capital allocation among economics students in Poland. Investments on the Warsaw Stock Exchange and forex in comparison to a poker game

Frączek¹,

Dąbrowski²

2019

JEM

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Aim/purpose -The paper examines the level of investment activity among the last semester master's degree students of economics fields, including investment in stocks and in forex (FX) in comparison to a poker game. Design/methodology/approach -The paper presents the exploration of similarities and differences of stock trading, forex trading and poker playing (a critical analysis of the literature), and questionnaire research among 613 students of the last semester of studies at the University of Economics in Katowice. Findings -A decreasing level of a participation of individuals in financial markets refers to different financial segments like capital markets and trading on, e.g. the Warsaw Stock Exchange (WSE) or the foreign exchange market (forex, FX). The current market situation does not constitute favourable conditions to increase commitment of individual investors on the WSE. In addition, other form of investment among young people is being observed, e.g. poker. The results of the research stress the role of an effective financial education and its influence on a changing the attitudes towards investments.Research implications/limitations -The research sample is limited to the students of one university. Originality/value/contribution -So far, there has not been conducted any research among potential important participants of financial markets which takes into account the listed alternatives: investments on the Warsaw Stock Exchange and in forex, or a poker game.

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Section: Stock Vs Forex Tradingsupporting

confidence: 66%

The preferences in capital allocation among economics students in Poland. Investments on the Warsaw Stock Exchange and forex in comparison to a poker game

Frączek¹,

Dąbrowski²

2019

JEM

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“…The relationship between stock market return, price movements, and forex price variations http://dx.doi.org/10.21511/imfi.19 (4).2022.06 has been widely explored (Patel, 2017). Aravind (2017) analyzed the effect of volatility in Forex rates of the Indian rupee with other major global currencies like US Dollar, Euro, Japanese Yen, and GBP on the stock price and return volatility in the Indian stock market using the granger causality test. The study exhibited a weak causal relationship between the exchange rate of USD, EUR and JPY to stock returns but a positive relationship with GBP.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India

Matha

Geetha

Kumar

et al. 2022

Investment Management and Financial Innovations

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The interrelationship between equity, bond, commodity and forex movements can provide investors with abundant trading opportunities regardless of whether one market is trending upward or downward. Hence, to understand the interlinkage between markets, this study examines the long-run and causal linkage between forex, G-sec bonds, oil prices, gold rates, foreign institutional investment (FII) flows, and equity market and sectoral index returns. Daily time-series data from August 2012 to August 2021 were considered for empirical analysis. Johansen’s cointegration test revealed that foreign exchanges like USD, Euro, GBP and Yen, oil and gold rates, G-bond returns and FII flows were significantly cointegrated with the stock market and sectoral indices in the long run. Further, Granger causality found a uni-directional relationship between forex rates (i.e., USD, Euro, Yen) and the market, as well as sectoral indices, except Nifty 50 and Nifty IT indices. Oil price movements were found to effectively predict future price changes of Nifty consumer durables, auto, IT indices. Gold prices are useful to predict Nifty-Auto, Bank, Financial Services, Oil &amp; Gas and PSU. The study also found a bi-directional relationship from FII inflows to the stock market and sectoral indices. The findings suggest that forex rates, oil prices and FII flows significantly affect India’s stock market and sectoral performance. The study contributes to the existing literature by comprehensively examining the interlinkage between commodities such as oil and gold, foreign exchanges like USD, Euro, GBP and Yen, G-bond, FII flows and the stock market, and fourteen sectoral indices in the Indian context.

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“…The numerous existing studies dealing with the volatility of the Indian foreign exchange market such as Sahoo et al (2017), Zabiulla (2015) and Aravind (2017), to name a few, are based on the volatility of the underlying dollar–rupee exchange rate returns. These studies typically measure dollar-rupee volatility using an econometric model from the GARCH family.…”

Section: Literature Reviewmentioning

confidence: 99%

Construction of a volatility index from exchange-traded dollar–rupee options

Bhat¹

2022

JIBR

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Purpose This paper aims to propose the implied volatility index for the US dollar–Indian rupee pair (INRVIX). The study seeks to examine whether INRVIX truly reflects future USDINR (US Dollar-Indian rupee) volatility and signals profitable currency trading strategies. Design/methodology/approach Two measures of INRVIX are constructed and compared: a model-free version based on the methodology adopted by the Chicago Board of Options Exchange (CBOE) and a model-dependent version constructed from Black–Scholes–Merton-implied volatility. The proposed INRVIX is computed by tweaking some parameters of the CBOE methodology to ensure compatibility with the microstructure of the Indian currency derivatives market. The volatility forecasting ability of INRVIX is compared to that of a generalized autoregressive conditional heteroscedasticity (1,1) model. Ordinary least squares regression is used to examine the relationship between n-day-ahead USDINR returns and different quantiles of INRVIX. Findings Results indicate that INRVIX based on the model-free approach reflects ex post volatility in a better manner than its model-dependent counterpart, although neither measure is found to be an unbiased and efficient forecast. Subsample analysis across tranquil and turbulent periods corroborates the results. The volatility forecasting performance of INRVIX is found to be better than that of forecasts based on historical time-series. These results are consistent with similar studies of developed market currencies. The study does not find any significant relationship between extreme levels of INRVIX and the profitability of trading strategies based on such levels, which is contrary to results from the equity options market. Practical implications Foreign exchange volatility affects the costs of international trade and the external sector competitiveness of Indian multinationals. It is a significant risk factor for financial institutions and traders in the financial markets. An implied VIX for the USDINR could serve as an indicator of expected foreign exchange risk. It could thus provide a signal for a possible intervention in the forex market by the regulator. Regulators could introduce volatility derivative contracts based on the INRVIX. Such contracts would enable hedging of the pure volatility risk of dollar–rupee exposure. Thus, the study has practical implications for investors, hedgers, regulators and academicians alike. Originality/value To the author’s knowledge, this is one of a few studies to construct an implied VIX for an emerging currency like the rupee. The study is based on up-to-date sample data that includes the recent COVID-19 market crash. A novel contribution of this paper is that in addition to examining whether INRVIX contains information about future USDINR volatility, and it also examines the signalling power of INRVIX for currency trading strategies.

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FX Volatility Impact on Indian Stock Market: An Empirical Investigation

Cited by 11 publications

References 24 publications

The preferences in capital allocation among economics students in Poland. Investments on the Warsaw Stock Exchange and forex in comparison to a poker game

The preferences in capital allocation among economics students in Poland. Investments on the Warsaw Stock Exchange and forex in comparison to a poker game

Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India

Construction of a volatility index from exchange-traded dollar–rupee options

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