Empirical Economics

, Volume 48, Issue 2, pp 699–714 | Cite as

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

  • Aviral Kumar Tiwari
  • Niyati Bhanja
  • Arif Billah Dar
  • Faridul Islam


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.


Cyclical and anti-cyclical effects Cross-wavelet transform  Wavelet coherency, India 

JEL Classification

G15 C40 E32 F21 F31 


  1. Abdalla I, Murinde V (1997) Exchange rates and stock price interactions in emerging financial markets: evidence on India, Korea, Pakistan and the Philippines. Applied Financ Econ 7:25–35CrossRefGoogle Scholar
  2. Aggarwala R (1981) Exchange rates and stock prices: a study of the us capital markets under floating exchange rates. Akron Bus Econ Rev 12:7–12Google Scholar
  3. Aguiar-Conraria L, Azevedo N, Soares MJ (2008) Using wavelets to decompose the time-frequency effects of monetary policy. Phys A 387:2863–2878CrossRefGoogle Scholar
  4. Aguiar-Conraria L, Soares MJ (2011a) Oil and the macroeconomy: using wavelets to analyze old issues. Empir Econ 40:645–655CrossRefGoogle Scholar
  5. Aguiar-Conraria L, Soares MJ (2011b) Business cycle synchronization and the Euro: a wavelet analysis. J Macroecon 33(3):477–489CrossRefGoogle Scholar
  6. Ajayi AR, Mougoue M (1996) On the dynamic relation between stock prices and exchange rates. J Financ Res XIX(2):193–207CrossRefGoogle Scholar
  7. Ajayi RA, Friedman J, Mehdian SM (1998) On the relationship between stock returns and exchange rates: tests of granger causality. Glob Financ J 9:241–251CrossRefGoogle Scholar
  8. Baubeau P, Cazelles B (2009) French economic cycles: a wavelet analysis of French retrospective GNP series. Cliometrica 3:275–300CrossRefGoogle Scholar
  9. Bhattacharya B, Mukherjee J (2003) Causal relationship between stock market and exchange rate. foreign exchange reserves and value of trade balance: a case study for India. Paper presented at the Fifth Annual Conference on Money and finance in the Indian economy, Jan 2003Google Scholar
  10. Caraiani P (2012) Stylized facts of business cycles in a transition economy in time and frequency. Econ Modell 29(6):2163–2173CrossRefGoogle Scholar
  11. Crowley P, Mayes D (2008) How fused is the Euro area core?: an evaluation of growth cycle co-movement and synchronization using wavelet analysis. J Bus Cycle Meas Anal 4:63–95Google Scholar
  12. Dacorogna M, Gençay R, Müller U, Olsen R, Pictet V (2001) An introduction to high-frequency finance. Academic Press, San Diego, CaliforniaGoogle Scholar
  13. Dornbusch R, Fischer S (1980) Exchange rates and current account. Am Econ Rev 70:960–971Google Scholar
  14. Frank P, Young A (1972) Stock price reaction of multinational firms to exchange realignments. Financ Manag 1(3):66–73CrossRefGoogle Scholar
  15. Frankel J (1993) Does foreign exchange intervention matter? The portfolio effect. Am Econ Rev 83:1356–1369Google Scholar
  16. Gabor D (1946) Theory of communication. J Inst of Electr Eng 93:429–457Google Scholar
  17. Gallegati M, Ramsey JB, Semmler W (2011) The US wage Phillips curve across frequencies and over time. Oxf Bull Econ Stat 73(4):0305–9049CrossRefGoogle Scholar
  18. Ge Z (2007) Significance tests for the wavelet power and the wavelet power spectrum. Ann Geophys 25:2259–2269CrossRefGoogle Scholar
  19. Ge Z (2008) Significance tests for the wavelet cross spectrum and wavelet linear coherence. Ann Geophys 26:3819–3829CrossRefGoogle Scholar
  20. Granger CWJ, Huang BN, Yang CW (2000) A bivariate causality between stock prices and exchange rates: evidence from recent Asian flu. Q Rev of Econ Financ 40:337–354CrossRefGoogle Scholar
  21. Grinsted A, Moore JC, Jevrejeva S (2004) Application of the cross wavelet transform and wavelet coherence to geophysical time series. Nonlinear Process Geophys 11:561–566CrossRefGoogle Scholar
  22. Hudgins L, Friehe C, Mayer M (1993) Wavelet transforms and atmospheric turbulence. Phys Rev Lett 71(20):3279–3282CrossRefGoogle Scholar
  23. Jammazi R (2012) Cross dynamics of oil-stock interactions: a redundant wavelet analysis. Energy 44(1):750–777CrossRefGoogle Scholar
  24. Ma KC, Kao GW (1990) On exchange rate changes and stock price reactions. J Bus Account 17(3):441–449CrossRefGoogle Scholar
  25. Madaleno M, Pinho C (2012) International stock market indices comovements: a new look. Int J Financ Econ 17:89–102CrossRefGoogle Scholar
  26. Maraun D, Kurths J (2004) Cross wavelet analysis: significance testing and pitfalls. Nonlinear Processes Geophys 11:505–514Google Scholar
  27. Maraun D, Kurths J, Holschneider M (2007) Non-stationary Gaussian processes in wavelet domain: Synthesis, estimation, and significance testing. Phys Rev E 75(016707):1–14Google Scholar
  28. Mishra AK (2004) Stock market and foreign exchange market in India: are they related? South Asia Econ J 5:209–232CrossRefGoogle Scholar
  29. Muhammad N, Rasheed A (2002) Stock prices and exchange rates: are they related? evidence from south asian countries. Paper presented at the 18th Annual general meeting and conference, Pakistan society of development economists, Islamabad, 13–15 Jan 2003Google Scholar
  30. Phylaktis K, Ravazzolo F (2000) Stock prices and exchange rate dynamics. pp. 17–37. See at http://www.cass.city.ac.UK/emg/workingpapers/stock-prices-and-exchange.pdf Accessed 07 July 2012
  31. Rahman L, Uddin J (2009) Dynamic relationship between stock prices and exchange rates: evidence from three south Asian countries. Int Bus Res 2(2):167–174CrossRefGoogle Scholar
  32. Raihan S, Wen Y, Zeng B (2005) Wavelet: a new tool for business cycle analysis. Working Paper 2005–050A, Federal Reserve Bank of St. LouisGoogle Scholar
  33. Rua A (2012) Money growth and inflation in the Euro Area: a time–frequency view. Oxf Bull Econ Stat 74(6):0305–9049CrossRefGoogle Scholar
  34. Rua A, Nunes LC (2009) International co-movement of stock market returns: a wavelet analysis. J Empir Financ 16:632–639CrossRefGoogle Scholar
  35. Smith C (1992) Stock markets and the exchange rate: a multi-country approach. J Macroecon 14(4):607–629CrossRefGoogle Scholar
  36. Soenen L, Hennigar E (1988) An analysis of exchange rates and stock prices-the us experience between 1980s and 1986. Akron Bus Econ Rev 19(4):71–76Google Scholar
  37. Solonik B (1987) Using financial prices to test exchange models. A note. J Financ 42(1):141–149CrossRefGoogle Scholar
  38. Tiwari AK, Dar AB, Bhanja N (2013) Oil price and exchange rates: a wavelet based analysis for India. Econ Modell 31:414–422CrossRefGoogle Scholar
  39. Torrence C, Compo GP (1998) A practical guide to wavelet analysis. Bull Am Meteor Soc 79:605–618Google Scholar
  40. Torrence C, Webster P (1999) Interdecadal changes in the esnom on soon system. J Clim 12:2679–2690CrossRefGoogle Scholar
  41. Venkateshwarlu M, Tiwari R (2005) Causality between stock prices and exchange rates: some evidence for India. ICFAI J Appl Financ 11:5–15Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  • Aviral Kumar Tiwari
    • 1
  • Niyati Bhanja
    • 2
  • Arif Billah Dar
    • 3
  • Faridul Islam
    • 4
  1. 1.Research scholar and Faculty of Applied Economics, Faculty of ManagementICFAI University TripuraSadarIndia
  2. 2.Department of Economics & IBUniversity of Petroleum and Energy StudiesDehradunIndia
  3. 3.Institute of Rural Management (IRMA)AnandIndia
  4. 4.Department of EconomicsMorgan State UniversityBaltimoreUSA

Personalised recommendations