Investigating Causality betweenStock Return, Commodity Market, Crude Oil Prices and Foreign Exchange Rate

Oil is one such commodity that holds a leading position in the economy of almost every country. India is the fourth largest consumer of crude oil in the world. Crude Oil and Coal collectively account for about 2/3rd of India's total energy consumption. Thus, crude oil is among the major import list of India and a slight change in prices of these products can affect the direction of economy upwards or downwards.

This paper has empirically tried to examine the relationship between Indian Capital Market, Crude Oil Prices, Indian Commodity Market and Foreign Exchange Rate. The data has been collected for a period ranging from January 2008 to June 2016. ADF Unit Root Test, Johansen Cointegration Test and Granger Causality Test have been applied. All the variables are found to be non-stationary at level but become stationary after first differentiation. No long term relationship was found between the variables. Further only Crude oil Prices and Energy Future Index; Stock Return and Foreign Exchange Rate are found to Granger Cause each other.