DOI: 10.1177/09718907261487384 ISSN: 0971-8907
Exchange Rate Spillover in Different Asset Markets: An Indian Perspective
Sourav Chakraborty, Bhaskar Goswami
The present empirical study investigates the relationships and spillover effects among different asset markets in India. The selected markets are the stock, gold, real estate and foreign exchange markets. Using the Johansen cointegration test and the Granger causality test, the article examines the long-term and short-term connections between these variables on a monthly basis from February 2004 to March 2024. The variance decomposition technique is primarily used to assess the spillover effects, while the
Diebold and Yilmaz (2009)
spillover index method is applied to evaluate the interconnectedness of these markets, and at the end, we apply the wavelet coherence test to capture the relationship between the asset markets across different frequencies and over time. Wavelet analysis also helps us to detect the short-term versus long-term correlation between the variables to get a clearer picture of interdependence. The findings indicate no short-term relationships between these markets, but the Johansen cointegration test reveals a long-term connection. The spillover analysis shows that the Indian real estate market is a net receiver of shocks from other markets, whereas the USD/INR exchange rate acts as the net transmitter of shocks. The total spillover index is approximately 27.7%, indicating a significant spillover effect among these asset markets in India. These insights can help traders, portfolio managers, policymakers and other market participants identify sources of volatility and make more informed investment decisions.