Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India
The interrelationship between equity, bond, commodity and forex movements can provide investors with abundant trading opportunities regardless of whether one market is trending upward or downward. Hence, to understand the interlinkage between markets, this study examines the long-run and causal link...
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| Format: | Article |
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LLC "CPC "Business Perspectives"
2022-10-01
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| Series: | Investment Management & Financial Innovations |
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| Online Access: | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/17211/IMFI_2022_04_Matha.pdf |
| _version_ | 1826904280190156800 |
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| author | Rajeev Matha Geetha E. Satish Kumar Raghavendra |
| author_facet | Rajeev Matha Geetha E. Satish Kumar Raghavendra |
| author_sort | Rajeev Matha |
| collection | DOAJ |
| description | The interrelationship between equity, bond, commodity and forex movements can provide investors with abundant trading opportunities regardless of whether one market is trending upward or downward. Hence, to understand the interlinkage between markets, this study examines the long-run and causal linkage between forex, G-sec bonds, oil prices, gold rates, foreign institutional investment (FII) flows, and equity market and sectoral index returns. Daily time-series data from August 2012 to August 2021 were considered for empirical analysis. Johansen’s cointegration test revealed that foreign exchanges like USD, Euro, GBP and Yen, oil and gold rates, G-bond returns and FII flows were significantly cointegrated with the stock market and sectoral indices in the long run. Further, Granger causality found a uni-directional relationship between forex rates (i.e., USD, Euro, Yen) and the market, as well as sectoral indices, except Nifty 50 and Nifty IT indices. Oil price movements were found to effectively predict future price changes of Nifty consumer durables, auto, IT indices. Gold prices are useful to predict Nifty-Auto, Bank, Financial Services, Oil & Gas and PSU. The study also found a bi-directional relationship from FII inflows to the stock market and sectoral indices. The findings suggest that forex rates, oil prices and FII flows significantly affect India’s stock market and sectoral performance. The study contributes to the existing literature by comprehensively examining the interlinkage between commodities such as oil and gold, foreign exchanges like USD, Euro, GBP and Yen, G-bond, FII flows and the stock market, and fourteen sectoral indices in the Indian context. |
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| id | doaj.art-7ccf6a409f954f1a9ba4b5652799ac6e |
| institution | Directory Open Access Journal |
| issn | 1810-4967 1812-9358 |
| language | English |
| last_indexed | 2025-02-17T08:10:05Z |
| publishDate | 2022-10-01 |
| publisher | LLC "CPC "Business Perspectives" |
| record_format | Article |
| series | Investment Management & Financial Innovations |
| spelling | doaj.art-7ccf6a409f954f1a9ba4b5652799ac6e2025-01-03T00:01:00ZengLLC "CPC "Business Perspectives"Investment Management & Financial Innovations1810-49671812-93582022-10-01194658210.21511/imfi.19(4).2022.0617211Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from IndiaRajeev Matha0https://orcid.org/0000-0001-6759-7612Geetha E.1https://orcid.org/0000-0002-1346-7641Satish Kumar2https://orcid.org/0000-0002-7007-2064Raghavendra3https://orcid.org/0000-0002-5798-6363Research Scholar, Department of Commerce, Manipal Academy of Higher EducationPh.D., Associate Professor, Department of Commerce, Manipal Academy of Higher EducationAssociate Professor, Department of Commerce, Manipal Academy of Higher EducationPh.D., Professor, Associate Dean, VIT-AP School of Business, VIT-AP UniversityThe interrelationship between equity, bond, commodity and forex movements can provide investors with abundant trading opportunities regardless of whether one market is trending upward or downward. Hence, to understand the interlinkage between markets, this study examines the long-run and causal linkage between forex, G-sec bonds, oil prices, gold rates, foreign institutional investment (FII) flows, and equity market and sectoral index returns. Daily time-series data from August 2012 to August 2021 were considered for empirical analysis. Johansen’s cointegration test revealed that foreign exchanges like USD, Euro, GBP and Yen, oil and gold rates, G-bond returns and FII flows were significantly cointegrated with the stock market and sectoral indices in the long run. Further, Granger causality found a uni-directional relationship between forex rates (i.e., USD, Euro, Yen) and the market, as well as sectoral indices, except Nifty 50 and Nifty IT indices. Oil price movements were found to effectively predict future price changes of Nifty consumer durables, auto, IT indices. Gold prices are useful to predict Nifty-Auto, Bank, Financial Services, Oil & Gas and PSU. The study also found a bi-directional relationship from FII inflows to the stock market and sectoral indices. The findings suggest that forex rates, oil prices and FII flows significantly affect India’s stock market and sectoral performance. The study contributes to the existing literature by comprehensively examining the interlinkage between commodities such as oil and gold, foreign exchanges like USD, Euro, GBP and Yen, G-bond, FII flows and the stock market, and fourteen sectoral indices in the Indian context.https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/17211/IMFI_2022_04_Matha.pdfbondcommodityFIIfinancial instrumentsforexGranger causality |
| spellingShingle | Rajeev Matha Geetha E. Satish Kumar Raghavendra Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India Investment Management & Financial Innovations bond commodity FII financial instruments forex Granger causality |
| title | Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India |
| title_full | Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India |
| title_fullStr | Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India |
| title_full_unstemmed | Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India |
| title_short | Dynamic relationship between equity, bond, commodity, forex and foreign institutional investments: Evidence from India |
| title_sort | dynamic relationship between equity bond commodity forex and foreign institutional investments evidence from india |
| topic | bond commodity FII financial instruments forex Granger causality |
| url | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/17211/IMFI_2022_04_Matha.pdf |
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