Analyzing Time-Frequency Relationship between Interest Rate, Stock Price and Exchange Rate Through Continuous Wavelet

In this study we investigate and identify the patterns of co-movement of interest rate, stock price and exchange rate in India in the period between July 1997 and December 2010 using the cross-wavelet power, the cross-wavelet coherency, and the phase difference methodologies. Our empirical findings suggest that stock prices, exchange rates and interest rates are linked. Moreover, the direction and type of the relationship depends on the frequency bands and over the time period studied is not same between pairs of stock-exchange rate, stock-interest rate and exchange rate-interest rate. Also, our results provide strong evidence that there are cyclical effects and anti-cyclical effects from each other