Study on relationship between exchange rate return and various stock indices returns

The Indian stock market is affected by many factors such as monetary policy, oil prices etc. This paper studies the relationship between Exchange rate return of Rupee-Dollar and various Stock Indices returns of India namely Nifty IT, Nifty Pharma, Nifty MNC, Nifty Commodity Index, Nifty Energy Index and Nifty Metal Index, for the time period December 2011-December 2016. The study also takes into account the volatility of returns of these indices and that of exchange rate returns to study the relationship between these two variables using Granger Causality Test. It was observed that Commodity Index return, IT index return, MNC Index return, Energy Index return, Sigma Commodity Index return and Sigma IT index return granger cause the Exchange rate return.