Study of Relationship Between USD/INR Exchange Rate and BSE Sensex from 2008-2017
Keywords:
USD/INR exchange rate, relationship, BSE SensexAbstract
Markets are driven by rationality is what is claimed by many economic and financial theories. However, an emerging discipline of behavioral economics determines that markets are not always driven by rationality but rather at times is driven by Animal spirit, a term quoted by J.M. Keynes. The present study focused on finding the relationship between USD/INR exchange rate and BSE Sensex during the period ranging from 2008-2017. The purpose of selecting the said period was the US Debt crisis of 2008 which had a spillover impact on many developed and developing economies which lead to huge amount of volatility in USD/INR rate. Granger causality testing was used to find the direction of causality and results showed a bi-directional relationship between two variables thereby indicating that investors adopt a selling preposition when rate depreciates thus causing a fall in Indices and vice-versa. The same is true with respect to economic theories which lay same foundation for an export driven economy.
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