Rupee Volatility and Stock Performance- An Empirical Study

Abstract

The research tries to understand the volatility of the Indian Rupee (INR) / US Dollar ($) exchange rate and its relationship with Indian stock market. The data used is monthly opening and closing prices of SENS EX and NIFTY over an eon of l years (2003 - 2013). Testing persistence for SENSEX and NIFTY found a weak correlation but they had a correlation coefficient of 0. 99 indicating movement in the same direction. A negative correlation was found between stock returns and the returns from the dollar with less significant impact which means a positive correlation with the returns from the Rupee. As stock market gai ns a positive sentiment prevails, improving investments in Indi and capita l market. This in turn increases the demand for INR and the price of INR in returns of $ increase, thereby depreciating the value of$ and vice versa. Hence, it is statistically established ed that $ fluctuations are influenced by stock market performance in India.