The Impact Of Short Term Interest Rates Finance Essay

August 19, 2017 Engineering

Zhang and Emil look into the impact of short-run involvement rates on stock monetary values of Sri Lanka. They used the Multiple Regression Analysis as the cardinal tool and Augment Dickey-Fuller ( DF ) Unit Root trial, Autocorrelation and Multicollinearity to back up the arrested development consequences. The involvement rates were measured by 91 yearss, 182 yearss and 364 yearss Treasury measure rates. Study found that there are weak relationship between short-run involvement rates and stock monetary values of Sri Lanka while correlativity between 364 Treasury measure rate and stock monetary values indicates a negative relationship.

Yutaka ( 2006 ) analysed the relationship between Nipponese stock monetary values and macroeconomic variables such as exchange rate and involvement rates. They found that involvement rates have non affected the Nipponese stock monetary values.

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Hazlina, Zarehan, Therisanyo and Reetsang ( 2011 ) examined the effects of involvement rates and exchange rates volatility on the underlying stock return in the Malayan Stock market. Their survey was based on monthly Kuala Lumpur Composite Index ( KLCL ) and 3 months Malaysia Treasury bond and monthly exchange rate of Ringgit per US Dollar from January 1997 to November 2009. To make the analysis they employed 2 different theoretical accounts based on GARCH ( 1, 1 ) , Model 1 without exchange rates and involvement rates and model 2 with both involvement rate and exchange rate. They found negative studies between involvement rate and exchange rate and KLCI returns but important for exchange rate and undistinguished involvement rates.

Zhou ( 1996 ) studied the relationship between involvement rates and stock monetary values. He used the arrested development analysis and found that involvement rates have a serious impact on stock returns. This was the instance in long-run investing skylines. He thought that stock returns would travel one-for-one with antique ante involvement rates but the latter was rejected. His decision was that long-run involvement rates explained a major portion of the fluctuation in monetary value dividend ratios and he suggested that the high volatility of the stock market is related to high volatility of long-tern bond outputs.

Muhammad, Ramiz and Awais examined the impact of involvement rates and exchange rates on stock return in Pakistani economic system for the period 1998-2009. They assembled inside informations of short-run involvement rates, exchange rate and stock market returns ( KSE-100 ) . A multiple arrested development theoretical account was applied to prove the significance alteration between involvement rates, exchange rates and stock return. They found that involvement rates and exchange rates have had of import influence on stock returns and there exists a negative consequence for involvement rates with stock returns while a positive consequence for exchange rates.

Hsing ( 2004 ) adopted a structural VAR theoretical account that allowed a coincident finding of several endogenous variables such as, end product, existent involvement rate, exchange rate and stock index. He found there exists an opposite relationship between stock monetary values and involvement rates. Zordan ( 2005 ) besides found that stock monetary values and involvement rates are negatively correlated. Arango ( 2002 ) besides found that there was a non linear and inverse the relationship between the portion monetary values on the Bogota stock market and involvement rates as measured by the inter bank loan involvement rates.

N’dri Leon ( 2008 ) examined the effects of involvement rates alterations on the stock market returns and volatility in Korea. They used hebdomadal informations from 31 January 1992 to 16 October 1998. They based their analysis on the GARCH ( 1,1 ) theoretical accounts: theoretical account 1 without involvement rates and model 2 with involvement rates in both conditional mean and discrepancy. They found that conditional market returns had a negative and important relation with involvement rates while a positive relationship with conditional discrepancy. Their consequences besides indicated that involvement rates have a strong prognostic power for stock returns in Korean and a weak prognostic power for volatility.

Husni, Walid and Mohammad have employed a clip series analysis to analyze the impact of involvement rates ( loans and progresss ) on the stock market capitalisation rate and authorities development stock rate in Amman Stock Exchange ( ASE ) . They used the ordinary least-square ( OLS ) arrested development method. However, they found that there was a important and positive relationship between involvement rates and stock market capitalisation rate.

The effects of macroeconomic variables such as involvement rates, house monetary value and gilded monetary value on stock monetary values have been studied by Mahmood and Ahmad ( 2011 ) in the capital market of Iran. They employed a Vector Auto Regression ( VAR ) theoretical account and Johansen-Juselius Co-integration by utilizing a sample of monthly informations from March 2001 to April 2011. Their survey found that relationship between nominal involvement rates and stock monetary values were negative.

Fama ( 1981 ) and Shwert besides concluded that stock market return and rising prices and involvement rates are negatively correlated. Suliaman et Al. ( 2009 ) found that involvement rates in Pakistan are significantly impacting stock monetary values. Campbell ( 1987 ) , Cutler, Poterba and Summers ( 1989 ) and Hodrick ( 1992 ) revealed that short and long term involvement rates do hold a grade to foretell stock returns. Besides, Campbell and Shiller ( 1991 ) showed that the incline of the term construction of involvement rates helps to calculate extra stock returns. Campbell and Ammer ( 1993 ) and Hamori and Honda ( 1996 ) besides found that short-run involvement rates affect stock monetary values.

Market, involvement rate and exchange rate effects on fiscal stock returns were examined by John and Nicolas ( 2009 ) . They focused on three fiscal sectors ( Banking, Financial Services and Insurance ) in 16 states. They besides tested for the presence of causality-in- mean and volatility spillovers. They used a four random variable GARCH-in theoretical account, which includes long and short-run involvement rates. In most instances they found a important positive relationship between stock market returns on average returns in each sector while involvement rates have had a important negative relationship.

Raymond used the Johansen Co-integration attack to find whether there is a long-term relationship between stock monetary values and pecuniary variables such as money supply, involvement rates, rising prices rate and exchange rate. To make so, he based his sample on a monthly information from January 1990 to March 2009 from Jamaica. He besides used the Granger causality trials to reason whether there exist a causal relationship between variables examined and stock monetary values. As decision, a long-run relationship was found to be between the JSE index and the pecuniary variables examined but JSE was positively affected by the rising prices rate while negatively correlated with involvement rate and exchange rate.

Banerjee and Adhikary studied the kineticss effects in involvement rates and exchange rate on the stock market return in Bangladesh. They used monthly informations from January 1983 to December 2006 based on the co-integration methodological analysis. They concluded that a long-term equilibrium and causal relationship existed between the dependant variable ( stock market return ) and the two independent variables ( involvement rate and exchange rate ) .

The relationship between stock market volatility and macroeconomic variable volatility for China during January 1992 to December 2008 was examined by Xiufang ( 2011 ) . The selected macroeconomic variables were GDP, rising prices and involvement rate. He based his survey on the Exponential Generalized Autoregressive Conditional Heteroskedasticity ( EGARCH ) and lag-augmented VAR ( LA-VAR ) theoretical accounts. He found that a unidirectional relationship existed between the involvement rate and stock monetary values.

Ovidiu and Delia-Elena used the co-integration and Granger Causality tests to analyze how pecuniary policy ( involvement rate ) affect equity indexes ( stock monetary values ) in the European Union states from January 2000 to February 2012. The consequences concluded there be a long and short-run relationship between monetary values and involvement rates. They besides found that the co-movement between involvement rates and stock monetary values were stronger during crisis period compared with the full period.

The impact of stock market liberalisation and macroeconomic variables ( exchange rates, involvement rates and oil monetary values ) on stock public presentations in ASEAN-3 ( Malaysia, Thailand and Indonesia ) was examined by Noor, Rubi and Catherine ( 2011 ) .Univariate and multivariate arrested development were carried out during their analysis. They revealed a negative relationship between involvement rates and stock market public presentations for Indonesia and Malaysia while a positive relationship for Thailand.

Ching-Chun investigated the consequence of China involvement rates on the industrial production and stock market index utilizing the Dynamic Conditional Correlation ( DCC ) Multivariate EGARCH theoretical account. To make so, they used monthly informations of involvement rates variables, the Chinese stock markets and the industrial production index from January 1985 to July 2007. They found that involvement rates variables do non hold a important mean spillover consequence on the industrial production index and the stock market index.

Another survey conducted by Suzanne and Andrew ( 2004 ) analyzed the clip series sensitiveness of Australian bank stock returns to market, involvement rate and foreign exchange rate hazards. They employed an drawn-out version of the Generalized Autoregressive Conditional Heteroskedasticity in Mean ( GARCH-M ) theoretical account. To make so, they used day-to-day Australian bank portfolio returns, a market broad accretion index, abruptly, medium and long-run involvement rates and a trade-weighted foreign exchange index over the period 1996 to 2001. Their consequence found that market hazard was a cardinal determiner of bank stock returns along with short and average term involvement rates and their volatility. But, the long-run involvement rates and foreign exchange rate did non look to be important factors for the Australian bank returns.

Mofleh Ali examined the long and short tally relationship between Saudi stock market returns and eight macroeconomic variables which includes the short-run involvement rates. A broad scope of Vector Autoregression ( VAR ) and Generalised Autoregresssive Conditional Heteroskedasticity ( GARCH ) theoretical accounts were used and interpreted. He besides used the Johansen-Juselius Co-integration trial and found that there was a negative long-run relationship the Saudi stock monetary value index and the short-run involvement rate.

Andullah and Hayworth ( 1993 ) used seven macroeconomic variables which include both short-run and long-run rates to explicate the alteration of monthly stock returns in the U.S stock market. Their analysis was based on a vector Autoregression, Granger Causality trials and impulse response. Consistent with the economic theory, they concluded that stock returns were negatively related to both short-run and long-run involvement rates.

Another survey conducted in 1993 based on macroeconomic variables ( includes short-run involvement rates ) was by Dhakal, kandil and Subhash. They investigated the relationship between macroeconomic variables such as the money supply, short-run involvement rates, monetary value degree, and existent end product and portion monetary values in the U.S stock market from 1973 to 1991. Their theoretical account was based on VAR and consequence indicated that alterations in involvement rates have had an indirect impact on portion monetary values alterations.

The impact of the monetary value of oil dazes, IP and the involvement rate on U.S stock market returns was explored by Sadorsky ( 1999 ) . Using monthly informations from January 1947 to April 1996, he based his survey on the VAR attack. Consequences showed that oil dazes lowered existent stock returns while stock returns had a positive impact on involvement rates and IP. This survey besides showed that the consequence of the monetary value of oil on U.S stock market returns was non changeless over clip, when compared to the consequence of involvement rates alterations.

Ratanapakom and Sharma ( 2007 ) tested for the long and short-term relationship between the S & A ; P 500 and six macroeconomic variables ( long term and short-run involvement rates, money supply, IP, rising prices and the exchange rate ) . The survey observed that the stock monetary values were negatively related to the long-run involvement rates while positively related to the short-run involvement rates. The inconsistent consequences of the consequence of long and short-run involvement rate on the S & A ; P 500 suggested that the long-run involvement rate was responding more like the S & A ; P 500 than the short-run involvement rate.

Thomton ( 1998 ) surveyed the long and short-term dynamic relationship between existent money supply, existent income, existent involvement rates and existent stock monetary values in Germany for 1960 to 1989. He utilized the Johansen Co-integration trial and the Granger-Causality trials to make so. The consequences of the survey concluded that there was a uni-directional Granger-causality consequence from involvement rates to existent stock monetary values.

Another survey conducted by Bashir and Hassan ( 1997 ) analyzed involvement rate sensitiveness to stocks in the United Arab Emirates ( UAE ) . They adopted the simple OLS technique over a period of January 1990 to December 1994. Findingss revealed that involvement rate fluctuations had a important and negative consequence on the stocks of banking. They besides found that, even in the absence of an official stock market, investors in the UAE do take into consideration the involvement rate factor when they deal in stocks.

Vardar et Al. ( 2008 ) explored the consequence of involvement rates and exchange rates on volatility of different sectors ( fiscal, industrial, services and engineering ) and composite indices in Istanbul Stock Exchange. A GARCH theoretical account was employed utilizing day-to-day informations covering a period from 2001 to 2008. Result showed that involvement rate volatility had a important positive relationship with Al indices except services sector, which was negatively correlated with involvement rate.

The alterations in involvement rates on stock returns of major Australian Bankss were examined by Vaz et Al. ( 2008 ) . They used a market theoretical account event survey methodological analysis during the period from January 1990 to June 2005. Consequences showed no negative consequence on Australian bank stock returns after increased in involvement rates, in comparing to U.S Bankss, where a negative impact was observed with an addition involvement rate.

Gan et Al. ( 2006 ) tested whether the New Zealand Stock Index is a prima index for these seven macroeconomic variables which include money supply, the short term involvement rate, the long-run involvement rate, the rising prices rate, CPI, exchange rate, and GDP. They used the Johansen ‘s ( 1990 ) Co-integration attack, granger causality trials and the impulse response analysis and to carry on this analysis, monthly informations from January 1990 to January 2003 was used. Consequences obtained from the survey suggested that a long-term relationship existed between New Zealand Stock indexes and the seven macroeconomic variables and that New Zealand stock index was forecasted by the money supply, involvement rates and the existent GDP.

Maghayereh ( 2003 ) investigated the nexus between the Jordanian capital market index and a set of macroeconomic variables that include money supply, involvement rates, domestic exports, foreign militias, rising prices and IP from January 1987 to December 2000. Johansen Co-integration trial and the Vector Error Correction Model were used. It was found that involvement rates were reflected in stock monetary values in the Jordanian capital market.

Maysami et Al. ( 2004 ) used monthly informations from January 1989 to December 2000 to analyse the relationship between Singapore ‘s composite stock index and three Singapore sector indexes ( finance index, belongings index and the hotel index ) and besides a set of macroeconomic variables including both short-run and long-run involvement rates. They revealed that short-run involvement rates had a important positive relationship with the Singapore ‘s stock market while long-run involvement rates exerted a negative relationship.

Muradoglu and Argac ( 2001 ) studied the long-term relationship between Turkish stock market and three pecuniary variables ( nightlong involvement rates, the money supply and the foreign exchange rate ) during the period from 1988 to 1995. These three variables were found non to be co-integrated with stock monetary values during the sample period. However in the sub-period from 1990 to 1995, they were found to be co-integrated.

To look into the nature of the long and short relationships between Indian stock monetary values and a set of macroeconomic variables including involvement rates, Ahmed ( 2008 ) used quarterly informations over the period March 1995 to March 2007. Findingss from the survey revealed that a long relationship did non be for the involvement rate with stock monetary values whereas in the short tally involvement rates appear to take stock monetary values.

Another survey conducted by Zafar et Al. ( 2008 ) analysed the effects of alterations in the involvement rates utilizing the 90-day T-bill rate on the volatility of Karachi stock returns. Same as to Leon ‘s ( 2008 ) survey, they estimated two distinguishable GARCH ( 1, 1 ) theoretical accounts: one without involvement rates and the other with involvement rates to gauge the comparative mean and discrepancy for monthly informations for the period from January 2002 to June 2006. Findingss from the survey revealed that comparative market returns had a important relationship with involvement rates while an undistinguished negative relationship with conditional discrepancy demoing a weak forecaster for its volatility. As decision, they suggested that policymakers should carefully see these relationships when negociating with stock market and overall policy in the economic system because higher involvement rates cut down profitableness of the houses and hence doing stock monetary values to travel down.

Adegoke and Abraham surveyed the influence of macroeconomic policy ( besides relates to involvement rates ) on stock returns in the Nigerian Capital Market. Their consequence showed that involvement rate had important negative relationships with stock market returns in Nigeria.

Chen, Roll and Ross ( 1986 ) hypothesised and tested a set of macroeconomic variables ( industrial production, rising prices, term construction of involvement rate, ingestion, market indices and oil monetary values ) to explicate the US stock returns. Their findings showed a strong relationship between the examined macroeconomic variables and the expected stock returns.

Olivier J. Blanchard ( 1981 ) studied the Output, the stock Market and Interest rates relationship. His consequence showed that initial rising prices may take to lower existent involvement rates and as a consequence, consequence in a larger initial alteration in the stock market. Another survey conducted by Rigobon and Sacks ( 2003 ) found that short-run involvement rates react significantly to motions in the wide equity monetary value index, set uping the stock monetary value motions on aggregative demand.

Bento ( 2002 ) investigated the impact of unforeseen alteration in the federal fund rate mark on the comparative mean and discrepancy of stock monetary values. He used the EGARCH theoretical account utilizing informations from January 1988 to January 2001. His consequence showed that involvement rates surprises had an proclamation twenty-four hours consequence on stock values and an impact on stock market volatility. Abugri ( 2008 ) used the VAR theoretical account to analyze whether kineticss in involvement rate variable in four Latin American states significantly explain market return. As decision, his findings suggested that involvement rate variables are invariably significantly in explicating returns in all the markets.

Interest rate volatility in emerging markets was explored by Sebastian Edwards and Raul Susmel ( 2003 ) utilizing the 30-days domestic involvement rates of five states ( Argentina, Brazil, Chile, Hong Kong and Mexico ) . They employed the GARCH theoretical account and found that the hypothesis of independency could non be rejected. Durukan ( 1999 ) examined the relationship between macroeconomic variables and stock monetary values in the Istanbul Stock Exchange. He found that involvement rate was negatively correlated with the stock monetary value.

Uddin and Alam ( 2007 ) studied the additive relationship between portion monetary values and involvement rates on the Dhaka Stock Exchange ( DSE ) . Their survey revealed that involvement rates had important negative relationship with portion monetary values. Besides, Melina ( 2005 ) found that there is a uni-directional causal relationship between the involvement rates and the general index of Athens stock exchange. Darrat ‘s ( 1990 ) findings showed that budget shortages, long-run bond rates, sum of industrial production and the volatility of involvement rate had an consequence on the stock returns.

Beirne et Al. ( 2009 ) examined the relationship between macroeconomic variables, which include the three fiscal sectors examined indices, T-bills, authorities bonds, exchange rates, long and short term involvement rates and stock returns in three fiscal sectors ( banking, fiscal services and insurance ) in 16 different states. They utilized the GARCH theoretical account and concluded that there is a negative important consequence of involvement rates.

Jawaid and Anwar ( 2012 ) tested the effects of exchange rates, involvement rates and their volatilities on stock monetary values of banking industry of Pakistan. Consequence showed that there exist a important negative long-term relationship between exchange rate and short-run involvement rate and stock monetary values. However, positive and important relationship was found between volatilities of exchange rate, involvement rates and stock monetary values. Besides an uni-directional causality was found to run from short-run involvement rates to stock monetary values.

Asankha Pallegedara analyzed the kineticss relationships between stock market public presentation and the involvement rates in Sri Lanka. The latter used all portion monetary value index in the Colombo stock exchange as a step of stock market public presentation index and Sri Lanka interbank offer rate as a step of involvement rate. Result revealed a negative relationship between stock market index and involvement rates in the long-run while no causal relationship in the short-run.

The relationship between a set of macroeconomic variables and the index of Chinese stock market was surveyed by Liu ve Shrestha ( 2008 ) . An heteroscedastic co-integration was employed and empirical consequences showed a negative relationship existed between involvement rate and the index of Chinese stock market. Aspem ( 1989 ) besides found a negative impact between involvement rates and stock monetary values when he studied the nexus between macroeconomic variables and stock monetary values in European states. Bulmash and Trivoli ( 1991 ) besides concluded that involvement rates affected stock monetary values negatively.

The relationship between stock returns and involvement rates in Sri Lanka employed by Premawardane ( 1997 ) found a negative relationship while a positive relationship was found by Hasan et Al. ( 2000 ) . Geske and Roll findings showed that a alteration in existent involvement rates caused a alteration in stock monetary values in an opposite way.

Lee ( 1997 ) found that the relationship between the stock market and the short-run involvement rates was non changeless over clip and it changes from a significantly negative to zero relationship or even positive despite undistinguished positive relationship. Shanken ( 1990 ) concluded that the nominal one-month T-bill output had a important positive relationship with market discrepancy while negatively associated with stock returns.

The relationship between stock return, involvement rates and exchange rates was investigated by Ahmad, Rehman and Raoof ( 2010 ) in the Pakistani economic system. Multiple arrested development analysis was used over the period 1998 to 2009. As decision, it was found that a rise in involvement rates increases the cost of concern which in bend decreases the stock returns and frailty versa.

Ely and Salehizadeh ( 1999 ) used dividend outputs, term premium, pecuniary policy and existent involvement rate variables to calculate stock and bond returns. Result revealed that existent involvement rates were an of import variable to explicate fluctuation in returns. Spiro ( 1990 ) concluded a negative relationship between existent involvement rates and stock monetary values when analyzing the impact of existent involvement rates on stock market public presentation in developed economic systems. Besides, Mohammed Omran used the clip series analysis to prove whether existent involvement rates have an consequence on the stock public presentation in Egypt, both in footings of market activity and liquidness. Consequences concluded that there were important long-term and short-term relationships between the variables.

Hondroyiannis and Papapetrou ( 2001 ) analyzed the impact of macroeconomic variables ( including involvement rates ) on the Greece stock market. They found that stock monetary values were non affected by the economic activity but macroeconomic activity did hold an impact on the stock monetary values motions.

Mohammed Adam analyzed the function of macroeconomic variables on Ghana stock monetary values motion. Among the macroeconomic variables was the Treasury measure rate which was used as step of involvement rates. He found that involvement rate is the cardinal determiner and negatively correlated with the portion monetary value motions in Ghana. Similarly, Humpe and Macmillan ( 2007 ) used the co-integration analysis to analyze the impact of a figure of macroeconomic variables ( including long involvement rates ) on stock monetary values in two states, the US and Japan. Result showed that US stock market was negatively influenced by the long involvement rates.

Gupta, Chevaler and Saylet studied the relationship between involvement rates, exchange rates and stock monetary values in the Jakarta stock exchange over the period from 1993 to 1997. Consequence showed that there was strong causal relationship between stock monetary values and involvement rates. Besides, Hasan and Samarakoon investigated the nexus between short-run involvement rates and expected returns in the emerging Sri Lankan stock market. They used Treasury measure outputs as a step of involvement rates to enter expected monthly, quarterly and one-year returns during the period from 1990 to 1997. As decision, their findings revealed that there existed a positive relation between involvement rates and expected returns.

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