Decomposing Time-Frequency Relationship between Interest Rates and Share Prices in India through Wavelets

Tiwari, Aviral Kumar (2012): Decomposing Time-Frequency Relationship between Interest Rates and Share Prices in India through Wavelets.

Abstract

The study analyzed Granger-causality between interest rate (IR) and share prices (SP) for the India by using monthly data covering the period of 1990M1 to 2009M3. The time-frequency relationship between IR and SP was decomposed through continuous wavelet approach for the first time in the study. We found that for the Indian economy the causal and reverse causal relations between SP and IR vary across scale and period viz., during the late 1993 and early 1994, in 1-4 year scale, IR is lagging with cycle effects from SP, whereas during 1998-2001, in 8~12 year scale, IR is leading with cyclical effects on the SP. Further, results show that during 2003 to early 2005 (in 1~6 year scale) and again after late 2006 (in 9~14 year scale) IR is lagging and receiving anti-cyclical effects from SP.

• Item Type: MPRA Paper
• Language: English
• Keywords: cyclical effects, anti-cyclical effects, Granger-causality, phase difference, cross wavelets, wavelet coherency
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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