A study on the Causal Relationship Between CNX Nifty and the Index of Industrial Production

Abstract

The Index of Industrial Production (/IP J is an important indicator of economic trends and investors, therefore assume that it has a bearing on the index. This study seeks to address the question as to whether changes in the Index of lndustrlal Production has a bearing on the movement of the index. The CNX Nifty has been taken as the market index for the purposes of this study. The study covers data for the period between 1990 and 2015. The augmented dickey fuller test has been used to test for stationarity and the data has been found to be stationary after first differencing. Causality and direction of causality is studied using the Granger Causality test. The findings were surprising as the causality was seen to be from CNX Nifty to /IP, which is contrary to what many investors assume. The key finding is that the markets are informationally efficient and investors have access to data well before they are published.