Cointegration And Volatility Linkages between Equity Commodity and Currency Prices in India

Abstract

This study focuses on understanding the relationship between selected variables. The main purpose of this research is to explore the nature of association and the possible existence of a short run and long run relationship between equity, agricultural commodities, non-agricultural commodities and currency in India. To find out the relationship equity index NIFTY 50, commodity indices COMDEX and NKRISHI and USD/INR pair are considered as main variables. The main idea is to know how these selected indicators are related to each other. The daily basis 2740 observations for all four variables from year 2008 to 2019 are taken into consideration. Data for Nifty 50 are collected from are collected from Stock exchanges - National stock exchange (NSE) websites all data for COMDEX are collected from Multi Commodity Exchange (MCX). Nkrishi agricultural index data are taken from National Commodity and Derivatives Exchange of India (NCDEX) and USD/INR data are taken from website of Reserve Bank of India (RBI). newlineThe stationarity of time series is checked and differentiated as per requirement. Here, Johansen co-integration test is adopted to figure out the long-run relationship between selected variables. The result shows that there is no cointegration equation among the variables. The short run relationship is examined with help of Vector Autoregression (VAR) model and the short run relationship within different lags of variables has been identified. The correlation among variables with help of correlation matrix is checked and Granger causality test is also applied.