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Time–frequency relationship between share prices and exchange rates in India: Evidence from continuous wavelets

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Abstract

The paper examines the relationship between exchange rates and share prices using the wavelets approach, and more specifically the continuous wavelet power spectrum, cross-wavelet transform, and cross-wavelet coherency. Our results, based on Indian data, lend support to the traditional (Am Econ Rev 70:960–971, 1980) as well as the new portfolio hypothesis (Am Econ Rev 83:1356–1369, 1993), albeit over different time periods and across different time scales. The wavelet approach used in the paper has helped to uncover some interesting economic relationships within the time–frequency domain which have remained hidden thus far.

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Notes

  1. Aguiar-Conraria et al. (2008) is the first study to examine macroeconomic relations using continuous wavelets.

  2. The description of CWT, XWT, and WTC is drawn from the work of Grinsted et al. (2004). We are grateful to Grinsted and co-authors for making the codes available at: http://www.pol.ac.uk/home/research/waveletcoherence/ which we used in the present study.

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Acknowledgments

We are very thankful to the reviewers for pointing out some very critical issues that helped us to improve the quality of the paper. We also express our gratitude to them for providing us with relevant references. Standard caveats apply.

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Authors and Affiliations

  1. Research scholar and Faculty of Applied Economics, Faculty of Management, ICFAI University Tripura, Kamalghat, Sadar, West Tripura, 799210, India

    Aviral Kumar Tiwari

  2. Department of Economics & IB, University of Petroleum and Energy Studies, Dehradun, 248007, India

    Niyati Bhanja

  3. Institute of Rural Management (IRMA), Anand, Gujarat, 388001, India

    Arif Billah Dar

  4. Department of Economics, Morgan State University, Baltimore, USA

    Faridul Islam

Authors
  1. Aviral Kumar Tiwari
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  2. Niyati Bhanja
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  3. Arif Billah Dar
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  4. Faridul Islam
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Correspondence to Aviral Kumar Tiwari.

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Tiwari, A.K., Bhanja, N., Dar, A.B. et al. Time–frequency relationship between share prices and exchange rates in India: Evidence from continuous wavelets. Empir Econ 48, 699–714 (2015). https://doi.org/10.1007/s00181-014-0800-3

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