2024, Vol. 5, Issue 2, Part E
Evaluating long-term and short-term relationships: Cointegration of NSE NIFTY with crude oil, gold, and USD/EUR currency pair
Author(s): Nagendra Marisetty
Abstract: This study examines the interrelationships between key financial assets, including NSE NIFTY, Dow Jones Industrial Average (DJI), crude oil, gold, and the USD/EUR exchange rate over the 2014–2023 period. Through correlation analysis, unit root tests, cointegration tests, and Vector Error Correction Model (VECM), the research explores both short-term dynamics and long-term equilibrium relationships. The findings reveal strong positive correlations between NSE NIFTY and both DJI and gold, indicating the influence of global economic trends and safe-haven assets on the Indian stock market. However, the correlation between NSE NIFTY and crude oil is weaker, suggesting that oil prices, while impactful on the global economy, do not directly drive stock market performance. Currency fluctuations, as captured by the USD/EUR exchange rate, have a moderate effect on NSE NIFTY, reflecting their influence on trade and capital flows. The Johansen cointegration test and Engle-Granger cointegration regression indicate no significant long-term equilibrium relationships among the variables, suggesting that these markets, while interrelated in the short run, follow distinct long-term paths. The VECM results further emphasize the unique role of crude oil in adjusting to long-term imbalances, while NSE NIFTY, DJI, gold, and the USD/EUR exchange rate show weaker short-term adjustments. These findings highlight the importance of understanding both the short-term interdependencies and long-term divergences between financial markets, commodities, and currencies for informed investment strategies and policy decisions. Future research should consider incorporating additional macroeconomic variables to capture the evolving complexities of these relationships.
DOI: 10.22271/27084515.2024.v5.i2e.378
Pages: 395-405 | Views: 68 | Downloads: 30
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How to cite this article:
Nagendra Marisetty. Evaluating long-term and short-term relationships: Cointegration of NSE NIFTY with crude oil, gold, and USD/EUR currency pair. Asian J Manage Commerce 2024;5(2):395-405. DOI: 10.22271/27084515.2024.v5.i2e.378