Asian Journal of Management

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Effect of Exchange Rates Volatility on Stock Market Performance


Affiliations
1 Assistant Professor, Department of Management Studies, Christ (Deemed to be University), Bengaluru, India
2 Associate Professor, Department of MBA, BNM Institute of Technology, Bengaluru, India
     

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Capital market growth and foreign exchange rate stability are paramount for any country’s economic development. International investors places an important role in interconnecting the relationship between exchange rates and stock market growth. The study pertains to analyze the effect of exchange rate volatility on performance of stock markets. The study selected four exchange rates (EURO/INR, USD/INR, GBP/INR and YEN/INR) and three stock indices of BSE (SENSEX, BSE 500) and NSE (Nifty 50). The study used GARCH model to analyze the effect of exchange rate volatility. Overall, the study found great influence of exchange rate volatility on performance stock indices. Fluctuation of exchange rates have an impact on prices of the stock index on the immediate next day. Market participants are suggested to consider immediate previous day’s exchange rate volatality in order to take better trading decision.

Keywords

International Investors, GARCH Model, Exchange Rate Volatility and Trading Decision.
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  • Effect of Exchange Rates Volatility on Stock Market Performance

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Authors

K. S. Manu
Assistant Professor, Department of Management Studies, Christ (Deemed to be University), Bengaluru, India
Padma Bhaskar
Associate Professor, Department of MBA, BNM Institute of Technology, Bengaluru, India

Abstract


Capital market growth and foreign exchange rate stability are paramount for any country’s economic development. International investors places an important role in interconnecting the relationship between exchange rates and stock market growth. The study pertains to analyze the effect of exchange rate volatility on performance of stock markets. The study selected four exchange rates (EURO/INR, USD/INR, GBP/INR and YEN/INR) and three stock indices of BSE (SENSEX, BSE 500) and NSE (Nifty 50). The study used GARCH model to analyze the effect of exchange rate volatility. Overall, the study found great influence of exchange rate volatility on performance stock indices. Fluctuation of exchange rates have an impact on prices of the stock index on the immediate next day. Market participants are suggested to consider immediate previous day’s exchange rate volatality in order to take better trading decision.

Keywords


International Investors, GARCH Model, Exchange Rate Volatility and Trading Decision.