Dynamics of the impact of currency fluctuations on stock markets in India: Assessing the pricing of exchange rate risks

Saumitra N. Bhaduri

60 citations0/0 files storedBorsa Istanbul Review

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Market Dynamics and Volatility

Abstract

This paper studies the dynamics of the impact of currency fluctuation on Indian stock market by assessing the pricing of exchange rate risk during the period 2005–2016, specifically before and after financial crises. Estimating a two-factor arbitrage pricing model, using a random coefficient model, the paper presents evidence that stock returns react significantly to foreign exchange rate fluctuations in the post-crisis period. Particularly, during the last four years of our sample, 2012–2016, the exchange rate risk factor is becoming a prominent determinant of stock returns, indicating that Indian investors are increasingly expecting a risk premium on their investment for their added exposure to exchange rate risk. This is also further corroborated by the study by highlighting the fact that higher the foreign exchange exposure of industry, measured by trade balance (net inflows), higher is their sensitivity to exchange rate risk (βS). A plausible reason for such premium could be the inadequate hedging by Indian firms to mitigate the exchange rate risk.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 60 citations exist upstream.

References

1976The arbitrage theory of capital asset pricing 1986Economic Forces and the Stock Market 1970Efficient Inference in a Random Coefficient Regression Model 1992Industrial Structure and the Comparative Behavior of International Stock Market Indices 1991The Pricing of Exchange Rate Risk in the Stock Market 1998How big is the premium for currency risk?1We thank Geert Bekaert, Tim Bollerslev, Peter Bossaerts, Mark Carhart, John Cochrane, Magnus Dahlquist, Wayne Ferson, Linda Goldberg, Campbell Harvey, Pierre Hillion, Robert Hodrick (the referee), Olivier Ledoit, John Matsusaka, Hans Mikkelsen, Angel Serrat and Ivo Welch, as well as workshop participants at INSEAD, University of California at Los Angeles, University of Southern California, University of Rochester, Southern Methodist University, University of California – Irvine, Koc University and participants at the 1996 UBC Global Investment Conference (Whistler, BC), 1996 Western Finance Association meetings (Sunriver, OR), 1996 European Finance Association meetings (Oslo, Norway), 1996 NBER Asset Pricing meeting (Evanston, IL), and the 1997 Econometric Society winter meetings (New Orleans, LA) for their comments. The paper was written while the second author was visiting the Anderson School at UCLA. Both authors acknowledge the financial support of a CIBEAR grant.1 1994Sources of risk and expected returns in global equity markets 1986The Pricing of Interest-Rate Risk: Evidence from the Stock Market

Cited by

2022Do geopolitical oil price risk, global macroeconomic fundamentals relate Islamic and conventional stock market? Empirical evidence from QARDL approach

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.