Long Run Cointegration Relationship between Nifty Returns Distribution to Changes in the Level and Volatility of Interest Rate

Abstract

At this economic crisis, Government is taking steps to revive the economy which was held back due to pandemic in 2020. This research paper intends to give inputs to the Government for taking major decision in terms of changes in interest rate. The paper examines the impact of interest rate on Nifty returns on long run. Various theories and models were examined to explain the long run and short run relationships and forecasting of above stated variables. The period of study isfrom January 2008 - January 2021.The interest rate taken is G-sec10-year yield and Nifty return from RBI and NSE website. Before conducting the empirical analysis, data was made as continuous time series, normality test conducted and unit root test was applied to test the stability of the data. Lagged length was determined by VAR model and long run relationship was tested by the Johansen - JuseliusCointegration test. It is observed that there is no relationship between the G-sec yield and Nifty in long run. This inference from the research can be used by economists, Government, Portfolio managers and others to take some vital decisions.