AN EMPIRICAL STUDY IN THE
INDIAN CONTEXT.
Meer Pratap Thakker
II MFM (Masters of Financial Management)
School of Business Management, Accounting & Finance
Sri Sathya Sai Institute of Higher Learning.
Prasanthi Nilayam
Anantapur – 515134 e-mail—meerthakker@rediffmail.com Ph no: 09880249018 / 02231084035
Shri Vijay R Chary
Faculty, School of Business Management, Accounting & Finance
Sri Sathya Sai Institute of Higher Learning.
Prasanthi Nilayam
Anantapur – 515134 e-mail—vijayc@yahoo.com Ph no: 08555288475
Abstract Theory says that exchange rates should have a direct impact on the companies with heavy import or export activities and thus affecting their profitability and hence the stock prices. To check for the relevance of this effect, empirical tests have been conducted all over the world including in India. Most of the studies used market index as dependent variable and it was thus hypothesized that non-existence of relation between stock prices and the exchange rates, at least for India was because of improper sample selection. Keeping this in view two special indices are constructed that involves companies having high level of import and export activities. A sample of three import and three export companies are taken to see the effect of exchange rate movements on their stock prices. The analysis uses monthly data for the post liberalization era from April 1993 to March 2003 & weekly data from June 1998 to November 2003. The weekly data is further subdivided into two periods of depreciating and appreciating rupee against the dollar. The exchange rates used are Rs/$ nominal rate and also Real effective exchange rate. Various statistical tests such as regression equation, co-integration, Granger causality, forecasting etc., are used to do the analysis. The study supports the explanation that stock prices do not reflect changes in the exchange rate inspite of using
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