Title: Investigating the relationship between exchange rate and stock prices in India

Research Problem:

Research gap:

 Some papers find bidirectional volatility spillovers effects between stock and
exchange markets, while others find no causal linkage. A potential research gap is to
investigate the reasons behind these conflicting results.
 Some papers focus on the short-term relationship between stock prices and exchange
rates, while others examine the long-term relationship. A research gap could be to
investigate how the relationship between stock prices and exchange rates evolves over
different time horizons and whether it changes during times of market stress or
economic turmoil.
 The impact of global economic events on the exchange rate-stock price relationship in
India: India is an open economy and is susceptible to global economic events such as
changes in commodity prices and shifts in international capital flows. However, few
studies have explored the impact of these events on the exchange rate-stock price
relationship in India. Examining the extent to which global economic events affect
this relationship can provide important implications for policymakers and investors in
India.
 The effect of exchange rate volatility on stock price volatility in India: While there is
some evidence to suggest that exchange rate volatility can impact stock price
volatility in India, there is still a need for more research in this area. Understanding
the nature and extent of this relationship can help investors and policymakers in
managing risk and making more informed decisions.

Scope of the study

Statement of the Problem

The relationship between stock prices and exchange rates in India has been subject to
conflicting findings in the literature, with some studies reporting bidirectional volatility
spillovers while others finding no causal linkage. There is also a gap in understanding how
this relationship evolves over different time horizons and during times of market stress or
economic turmoil. Additionally, the impact of global economic events, the effect of exchange
rate volatility on stock price volatility, and the role of market structure on this relationship in
India remain underexplored. Furthermore, the COVID-19 pandemic has had a profound
impact on the global economy, including India, but little is known about the after-effects of
the pandemic on the causal relationship between exchange rates and stock prices in India,
particularly in the long term. Previous studies have focused on short-term effects and ignored
the long-term implications of the pandemic on the stock market and exchange rate dynamics.
Therefore, this study aims to investigate these gaps comprehensively and provide insights
into the relationship between stock prices and exchange rates in India, considering the impact
of the COVID-19 pandemic, to inform policymakers and investors in managing risk and
making informed decisions.
Title: Investigating the relationship between exchange rate and stock prices in India

Research questions:

1. What is the extent of the effect of exchange rate volatility on stock price volatility
in India?
2. To what extent do global economic events impact the relationship between stock
prices and exchange rates in India?
3. What are the implications of the findings for policymakers and investors in
managing risk and making informed decisions regarding the stock market and
exchange rate dynamics in India?
4. Is there a causal relationship between the Indian Stock Market and Foreign
Exchange Rates before, during, and after the COVID-19 pandemic?

Add or remove:

5. How has the relationship between stock prices and exchange rates in India
changed over time, specifically before, during, and after the COVID-19
pandemic?
6. (What are the differences in the estimated long-term memory of the data and the
relationship between stock prices and exchange rates in India when different
detrending methods are used?)
7. What is the nature of the relationship between the Indian Stock Market and
Foreign Exchange Rates before, during, and after the COVID-19 pandemic?

Research Objectives:

 To examine the effect of exchange rate volatility on stock price volatility in India
 To examine the impact of global economic events on the relationship between stock
prices and exchange rates in India.
 To determine the direction and strength of the correlation between the Indian Stock
Market and Foreign Exchange Rates before, during, and after the COVID-19
pandemic.
 To examine the causal relationship between the Indian Stock Market and Foreign
Exchange Rates before, during, and after the COVID-19 pandemic.

For maybe:

 To investigate the impact of the relationship between the Indian Stock Market and
Foreign Exchange Rates on the Indian economy before, during, and after the COVID-
19 pandemic.
 To compare the relationship between stock prices and exchange rates in India before
the pandemic with the relationship during and after the pandemic to determine if any
changes are temporary or long-lasting.

Research Hypothesis
Title: Investigating the relationship between exchange rate and stock prices in India

Hypothesis:

H1: There is a significant positive correlation between the Indian Stock Market and Foreign
Exchange Rates before, during, and after the COVID-19 pandemic.

H0: There is no significant correlation/causal relationship between the Indian Stock Market
and Foreign Exchange Rates before, during, and after the COVID-19 pandemic

H2: There is a causal relationship between the Indian Stock Market and Foreign Exchange
Rates before, during, and after the COVID-19 pandemic.