FDI Inflow, Stock Market Performance and Exchange Rate: Indian Scenario

In this research work, macro level analysis has been conducted to assess impact of foreign direct investment (FDI) capital inflow in Indian economy. This study is focused on causality relationship between FDI inflow, stock market performance and foreign exchange rate. This framework is used for policy implications of relationship between three variables. These macro-economic variables are linked with different policies. Causality tests performed on these variables are further used for policy implications. Impact of change in exchange rate on changes in FDI inflow is the least significant followed by impact of changes in FDI inflow on changes in sensitivity index of stock exchange (SENSEX). The third least significant relationship is observed between changes in FDI inflow on change in exchange rate. These relationships are implied to ‘Impossible Trinity’ framework to assess preference for monetary, fiscal and foreign exchange rate policies. It is observed that improving performance of stock market (SENSEX) should be on priority followed by exchange rate. These finding have implications on fiscal policy, monetary policy and exchange rate. The increase in return of stock market and favourable exchange rate will help in increasing FDI inflow in Indian economy. Stock market performance depends on daily transactions by investors and they are regulated only, not controlled. Supply of foreign currency in India is controlled by the Reserve Bank of India (RBI), who assesses the supply conditions of the market and attempts to manage exchange rate in favour of Indian economy. In other words, the exchange rate can be controlled by having control on supply of foreign currency in domestic market. Hence, there is possibility of having fixed exchange rate and target band of exchange rate.

Download Full-text

Dynamic impact of Gold Prices, Oil Prices and Exchange Rate on Stock Market Performance: A Case of Pakistan’s Stock Exchange (KSE 100 Index)

Review of Economics and Development Studies ◽

10.47067/reads.v7i1.309 ◽

2021 ◽

Vol 7 (1) ◽

pp. 1-12

Author(s):

Asif Ali ◽

Muhammad Kamran Khan ◽

Hamid Ullah

Keyword(s):

Exchange Rate ◽

Stock Market ◽

Foreign Exchange ◽

Market Performance ◽

Oil Prices ◽

Series Data ◽

Macroeconomic Variables ◽

Term Relation ◽

Stock Market Performance ◽

The Impact

Currently emerging markets are passing through economic turmoil due to considerable increases in the prices of oil and gold with significant variation in the foreign exchange market. All the macroeconomic variables are touching the highest value which was never occurred in the history of Pakistan. Taking advantages of the current situation the study has examined the impact of gold prices, oil prices and exchange rate on stock market performance. For this purpose, the study has used daily data of these macroeconomic variables for the period of 2003 to 2018. By using time series data analysis, it reveals that there is no co-integration or long-term relation among these variables; however, the vector autoregressive model showed significant short-term relation among the securities market performance, foreign exchange rate, prices of oil and gold. The analysis also suggests that significant changes in the prices of oil, foreign exchange rates and the prices of gold have a negative lagged effect on the performance of the stock market.

Download Full-text

Interest Rate, Foreign Exchange Rate, and Stock Market Development in Nigeria

Binus Business Review ◽

10.21512/bbr.v9i3.4941 ◽

2018 ◽

Vol 9 (3) ◽

pp. 247-253 ◽

Cited By ~ 1

Author(s):

Edward Adedoyin Adebowale ◽

Akindele Iyiola Akosile

Keyword(s):

Exchange Rate ◽

Interest Rate ◽

Stock Market ◽

Foreign Exchange ◽

The United States ◽

Ordinary Least Squares ◽

Foreign Exchange Rate ◽

Market Development ◽

National Bureau ◽

Stock Market Development

This research investigated the effect of interest rate and foreign exchange rate on stock market development in Nigeria. This research was centered on two research problems. First, it was whether interest rate had a significant effect on stock market development in Nigeria. Second, it was whether foreign exchange rate had a significant impact on stock market development in Nigeria. The scope of the research covered the period from 1981 to 2017. Data for this period were chosen because it covered pre and post-liberalization periods of Nigerian financial system. This research made use of ex post facto research design. Secondary data were sourced from Nigerian Stock Exchange reports, Central Bank of Nigeria statistical bulletins, and National Bureau of Statistics publications. Data were collected on Stock Market Capitalization (SMC), Prime Lending Rate (PLR) and Real Exchange Rate (RER) (Nigerian Naira in relation to American Dollars of the United States). Data analysis was carried out with Ordinary Least Squares (OLS) and Cochrane-Orcutt Iterative techniques. The findings reveal that interest rate has a significant negative effect, and foreign exchange rate has a significant positive effect on Nigerian stock market development during the period covered. It is suggested that monetary authorities should strive to formulate policies that will make interest and foreign exchange rates stable, competitive, and at a level that will stimulate the investment of funds in the stock market.

Download Full-text

Social and Economic Drivers of Stock Market Performance in Nigeria

Journal of Economic Impact ◽

10.52223/jei3032102 ◽

2021 ◽

Vol 3 (3) ◽

pp. 137-143

Author(s):

Ismaila Akanni Yusuf ◽

Mohammed Bashir Salaudeen ◽

Hope Agbonrofo

Keyword(s):

Exchange Rate ◽

Interest Rate ◽

Life Expectancy ◽

Stock Market ◽

Positive Impact ◽

Market Performance ◽

Secondary Data ◽

Ordinary Least Squares ◽

Stock Performance ◽

Stock Market Performance

The study examines the effect of the social and economic indicators on the stock market performance in Nigeria between 1981 and 2019. The study employs secondary data from the World Bank and Central Bank of Nigeria using the ordinary least squares as the technique of estimation. Findings show that regarding the economic drivers, interest rate, exchange rate, and inflation rate negatively impact the stock market while only income exerts a positive impact. However, both income and interest rate are significant economic drivers of stock performance. Regarding social drivers, life expectancy, poverty, and population exert a positive impact on stock performance. Similarly, both life expectancy and population are significant social drivers of stock market performance in Nigeria. The study recommends that monetary authorities should be cautious in avoiding discretionary policies that might hike the exchange rate; otherwise, the flow of funds to the stock market will be derailed. Also, the fiscal authority should invest massively in safety nets programmes to enhance the capacity of the growing population and reduce poverty.

Download Full-text

Effects of the COVID-19 pandemic on stock market returns and volatilities: evidence from selected emerging economies

Studies in Economics and Finance ◽

10.1108/sef-09-2020-0389 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Bijoy Rakshit ◽

Yadawananda Neog

Keyword(s):

Exchange Rate ◽

Stock Market ◽

Emerging Economies ◽

Market Performance ◽

Exchange Rate Volatility ◽

Oil Price ◽

Market Returns ◽

Stock Market Returns ◽

Content Type ◽

Stock Market Performance

Purpose The purpose of this paper is to investigate the effects of exchange rate volatility, oil price return and COVID-19 cases on the stock market returns and volatility for selected emerging market economies. Additionally, this study compares the market performance in the emerging economies during the COVID-19 pandemic with the pre-COVID and global financial crisis (GFC) period. Design/methodology/approach The authors apply the arbitrage pricing theory to model the risk-return relationship between the risk-based factors (exchange rate volatility and COVID-19 cases) and stock market returns. By applying the exponential generalized autoregressive conditional heteroskedasticity model, the study captures the asymmetric volatility spillover from the stock markets to foreign exchange markets and vice versa. Findings Findings reveal that exchange rate volatility exerts a negative and significant effect on the market returns in Brazil (BOVESPA), Chile (S&P CLX IPSA), India (SENSEX), Mexico (S&P BMV IPC) and Russia (MOEX) during the coronavirus pandemic. Regarding the effect of oil price returns, the authors find a positive relationship between oil price and stock market returns across all the economies in the study. The market returns of Russia, India, Brazil and Peru appeared more volatile during the pandemic than the GFC period. Practical implications As the exchange rate volatility is causing higher risk and uncertainty in the stock market’s performance, the central bank’s effort to maintain a stabilizing effect on the exchange rate sale can be proven crucial for the economies under consideration. Emphasized should also be given to boost investors’ confidence in the stock market, and for this, the government policy actions in reducing the transmission of the disease are the need of the hour. Originality/value While a large volume of literature on stock market performance in times of COVID-19 has emerged from developed economies, this study adds to the literature by exploring the emerging economies’ stock market performance during the COVID-19 pandemic. Unlike previous literature, this study examines the volatility spillover between stock and exchange rate markets in the worst affected emerging economies during the crisis.

Download Full-text

Stock market performance and foreign exchange market in Egypt: does 25th January revolution matter?

International Journal of Emerging Markets ◽

10.1108/ijoem-11-2017-0477 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Ahmed A. El-Masry ◽

Osama M. Badr

Keyword(s):

Stock Market ◽

Causal Relationship ◽

Foreign Exchange ◽

Foreign Exchange Market ◽

Market Performance ◽

Exchange Market ◽

Content Type ◽

Stock Market Performance ◽

Portfolio Managers ◽

Market Indexes

PurposeThis paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two sub-periods: pre- and post-January 25th Egyptian revolution (ER). The reason is to examine how this revolution affects the causal relationship between the two markets' performance.Design/methodology/approachIn this study, the daily basis data are used to enable good and effective observation changes in the foreign exchange rate and stock market performance over time. Stock market indexes and stock market capitalization are used as proxies for stock market performance. Further, the Egyptian pound to US$ exchange rate is used as a measure for foreign exchange market performance. The study analysis is done in stages. The first is to check the variables' stationarity for the pre- and post-revaluation. The second is to examine the cointegration among the variables. The third is to run vector autoregression (VAR) estimates, after which VAR Granger causality tests are employed.FindingsThe results show that the data are not stationary at their levels but stationary in their first difference level while there is no cointegration in the long-run among the variables in both sub-periods. Further, findings indicate that, in the pre-January 25th revolution period, there is a significant causal relationship between the foreign exchange market and stock market indexes and a significant causal relationship between market capitalization (CAP) and exchange rate at the 1% level. However, in the post-January 25th revolution period, the study does not find a significant causal relationship between foreign exchange market and stock market indexes and capitalization.Research limitations/implicationsAs this study focuses on the causal relationship between foreign exchange and stock markets before and after the 25th January Revolution, other macroeconomic variables such as consumer price index, interest rate and GDP were excluded for the comparison purposes with other studies. Further research is suggested to include them in the analysis to find out its effect on the performance of stock market and foreign exchange market.Practical implicationsThe existence of long-run bidirectional causality means that portfolio managers and hedgers may have improved their understanding regarding the dynamic relationship between foreign exchange market and stock market performance as this may help them to plan and implement suitable hedging strategies to guard against currency risk in future crises or events. Investors, fund and portfolio managers and policymakers should give much attention to these event-specific interactions when they make capital budgeting decisions and implement regulation policies. Furthermore, our results may allow portfolio managers, investors and policymakers to assess the importance of informational efficiency for both markets.Originality/valueThis paper is an original contribution to the literature that concerns the causal relationship between stock market and foreign exchange market in the period of political instability and social unrest such as the January 25th Revolution in one of the emerging markets, namely Egypt.

Download Full-text

Correlation analysis of the Korean stock market: Revisited to consider the influence of foreign exchange rate

Physica A Statistical Mechanics and its Applications ◽

10.1016/j.physa.2017.09.071 ◽

2018 ◽

Vol 491 ◽

pp. 852-868 ◽

Cited By ~ 2

Author(s):

Sang Kyun Jo ◽

Min Jae Kim ◽

Kyuseong Lim ◽

Soo Yong Kim

Keyword(s):

Exchange Rate ◽

Correlation Analysis ◽

Stock Market ◽

Foreign Exchange ◽

Foreign Exchange Rate ◽

Korean Stock Market

Download Full-text

Foreign Currency Derivatives and Foreign Exchange Rate Exposure Management of KOSDAQ Firms

Journal of Derivatives and Quantitative Studies ◽

10.1108/jdqs-02-2013-b0004 ◽

2013 ◽

Vol 21 (2) ◽

pp. 223-254

Author(s):

Taek Ho Kwon

Keyword(s):

Exchange Rate ◽

Foreign Exchange ◽

Foreign Currency ◽

Foreign Exchange Rate ◽

Sufficient Evidence ◽

Similar Data ◽

Test Results ◽

Crisis Period ◽

Exchange Rate Exposure ◽

Currency Derivatives

This study examines the foreign currency derivatives trading of KOSDAQ firms and analyses the relations of derivatives trading and foreign exchange rate exposure in the period 2005~2010. The amount of derivatives trading reaches 27.7% of total assets for the trading firms before global financial crisis period (2005~2007). While, the amount decreases to 17.6% of total assets during the crisis period (2008~2010). These amounts are much greater than those of KOSPI firms which are calculated using similar data specification and periods. The variables which are usually adopted as determinants of derivatives trading do not explain the usage of derivatives in the analysis of period 2005~2007. These results suggest that KOSDAQ firms use derivatives not only foreign exchange risk managements but also trading purposes during this period. Test results do not show sufficient evidence that KOSDAQ firms use derivatives trading in an effective manner to manage foreign exchange rate exposure. In sum, test results suggest that to achieve the goal of managing foreign exchange rate exposure firms should estimate their open position in foreign currency properly before conducting foreign currency derivatives trading.

Download Full-text

Evaluation of the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria

Business and Management Studies ◽

10.11114/bms.v5i2.4208 ◽

2019 ◽

Vol 5 (2) ◽

pp. 34 ◽

Cited By ~ 1

Author(s):

Cordelia Onyinyechi Omodero ◽

Sunday Mlanga

Keyword(s):

Exchange Rate ◽

Interest Rate ◽

Stock Market ◽

Price Index ◽

Market Performance ◽

Share Price ◽

Series Data ◽

Macroeconomic Variables ◽

Stock Market Performance ◽

The Impact

Stock market is an essential part of a nation’s economy and requires adequate evaluation of all factors that militate against its performance. This study investigates the role of macroeconomic variables in determining the stock market performance in Nigeria using annual time series data covering a period from 2009 to 2018. These data have been sourced from the World Bank Development Indicators, International Monetary Fund and CBN Statistical Bulletin. The results from the regression analysis indicate that exchange rate and interest rate do not have significant impact on share price index while inflation rate exerts a significant negative influence on share price index. On the contrary and in line with the concept of GDP and stock market performance, GDP significantly and positively impacts on share price index. The study among others suggests that the growth of the economy should be maintained to keep stock market flourishing while macroeconomic variables such as inflation, interest rate and exchange rate should be appropriately regulated by the relevant authorities to curtail all negative influences on stock market performance.

Download Full-text