Nexus between Indian Stock Indices and Foreign Exchange Rate during Covid-19 Pandemic: An Empirical Study

Abstract

In the paper we attempts to examine whether the nexus exist between the Indian stock indices and foreign exchange rate during COVID- 19 period. We take the data of Nifty, Sensex and Exchange Rate on daily basis from 1^stJanuary 2020, to 10^th June, 2021 during which there is too much volatility in stock indices and exchange rate. We want to find out whether the volatility between both is caused by each other or independent of one another. The different statistical tools have been applied to analyze the data. We establish adverse and moderate correlation between stock indices and exchange rate. Further through Granger Casual Test we check for casual relationship between the series and found that the indices granger causes exchange rate and no other way round. On the other hand, we found the significant and negative association between the stock indices and exchange rate in regression analysis but the variation in the indices due to exchange rate is very low.

Keywords: Nifty, Sensex, Exchange Rate, Normality Test, Correlation, Granger Causality Test, Regression Analysis.