Interest rate changes and stock returns in Spain: A wavelet analysis

Martínez, Pablo Moya; Ferrer, Román; Sotos, Francisco Escribano

doi:10.1016/j.brq.2014.07.004

Cited by 53 publications

(46 citation statements)

References 45 publications

(91 reference statements)

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“…This provides an evidence of heterogeneous behaviour of agents in the financial markets. Agents with long‐term investment horizons, such as institutional investors, are more likely to follow macroeconomic fundamentals while agents with a shorter time frame, such as noise traders, follow trends and react to occasional good and bad events (Moya‐Martinez et al ., ); thereby the bond yield‐stock market link varies across investment horizons. In addition, the linkage structure between bond yield changes and stock returns seems to be episodic; the islands of statistically significant coherence across almost all frequencies are mostly observed at times of ‘great recession’ (2007–09) and the European debt crisis (2010–12).…”

Section: Resultsmentioning

confidence: 99%

“…In order to compute wavelet correlation, we employed a maximal overlap discrete wavelet transform (MODWT) to the studied series by using a Daubechies least asymmetric filter with a filter length of 8 (LA8). The MODWT is a widely used method in the literature of financial market interdependence (Gençay et al ., ; Gallegati, ; Ranta, ; Dajcman, ; Moya‐Martinez et al ., ). Following Percival and Walden (), the MODWT coefficients can be represented as:

\begin{matrix} left {\hat{double-struckW}}_{j} = {\hat{W}}_{j} X \\ left {\hat{double-struckV}}_{j 0} = {\hat{V}}_{j 0} X \end{matrix}

where

{\hat{double-struckW}}_{j}

contains the MODWT wavelet coefficients corresponding to changes at scale

d_{j} = 2^{j - 1}

and

{\hat{double-struckV}}_{j 0}

contains MODWT scaling coefficients corresponding to averages on scale

λ_{J_{0}} = 2^{J_{0}}

.…”

Section: Methodsmentioning

confidence: 97%

See 1 more Smart Citation

Stock‐bond Co‐movements and Flight‐to‐quality in G7 Countries: A Time‐frequency Analysis

Bayracı

Demiralay

Gencer

2017

Bulletin of Econ Res

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This paper examines co-movement between stock returns and changes in 10-year government bond yields as well as flight-to-quality behaviour in G7 countries. We conduct the wavelet squared coherence analysis to explore the dynamics in both time and frequency domain. Our results provide evidence of positive co-movements, which vary over time and across investment horizon. The higher co-movement is found to be more concentrated in the lower frequency bands. We further analyse the dynamic nature of the scale-dependent wavelet correlations and find that the correlations are highly volatile and significantly increase across different time scales during the episodes of equity market turbulence. The increase in correlations reflects flights from stocks to safer bond investments as a result of dramatic changes in investor sentiment and risk aversion at times of market stress. equal to the present value of all projected cash flows discounted at the appropriate discount rate. 1 Interest rates generally affect stock prices via two main channels. First, interest rate changes directly influence the discount rate in standard stock valuation models. Second, variations in interest rates impact cost of financing and hence significantly change expectations about cash flows. In other words, the rising cost of borrowing decreases the expected future cash flow, causing stock price to fall. Therefore, movements in interest rates may have a negative influence on stock prices. In this regard, bond yield variations also affect tactical portfolio allocation strategies which are closely followed for an efficient rebalancing between risk and return in order to impede the catastrophic effects of unanticipated changes in economic expectations.As a result of financial market integration, crises are transmitted from one economy (or asset) to another easily, becoming an epidemic. 2 This situation makes international diversification inefficacious in the presence of contagion at times of economic turmoil. Consequently, financial market participants are forced to avail themselves of different asset classes for diversification benefits. The phenomenon called as 'flight-to-quality' enables investors to redesign their portfolios towards less risky assets at times of distress. More commonly, bonds are viewed as quality assets against stocks. Hartmann et al. (2004) suggest that 'flight-to-quality is about as frequent as simultaneous crashes of stock and bond markets'. One of the most comprehensive definitions of 'flight-to-quality' (FTQ) phenomenon comes from Baur and Lucey (2009). 3 They advocate that the co-movements between stock and bond returns decline during stock market plunges. Investors flee from stocks to bonds in order to compensate the losses incurred in the equity markets at times of adverse stock market conditions. By contrast, they attribute the 'flightfrom-quality' to the decreasing co-movements in bullish market episodes. In this case, investors shift their holdings from bonds to stocks to exploit the potential profits from the rising equ...

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Section: Resultsmentioning

confidence: 99%

\begin{matrix} left {\hat{double-struckW}}_{j} = {\hat{W}}_{j} X \\ left {\hat{double-struckV}}_{j 0} = {\hat{V}}_{j 0} X \end{matrix}

where

{\hat{double-struckW}}_{j}

contains the MODWT wavelet coefficients corresponding to changes at scale

d_{j} = 2^{j - 1}

and

{\hat{double-struckV}}_{j 0}

contains MODWT scaling coefficients corresponding to averages on scale

λ_{J_{0}} = 2^{J_{0}}

.…”

Section: Methodsmentioning

confidence: 97%

Stock‐bond Co‐movements and Flight‐to‐quality in G7 Countries: A Time‐frequency Analysis

Bayracı

Demiralay

Gencer

2017

Bulletin of Econ Res

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“…Điều này cho thấy rằng khi lãi suất chính sách tiền tệ tăng lên thì giá đồng Bitcoin trên thị trường giảm xuống (Bảng 1). Bằng chứng này cho thấy Bitcoin có thể được xem như là một tài sản tài chính, tức là, khi lãi suất tăng nhà đầu tư có khuynh hướng gửi tiền vào ngân hàng và giảm các khoản đầu tư vào các tài sản tài chính bao gồm cả tiền ảo [70][71][72] . Tỷ giá hối đoái cũng cho thấy mối quan hệ ý nghĩa với giá Bitcoin 42 .…”

Section: Kết Quả Nghiên Cứu Và Thảo Luận Kết Quảunclassified

Does Bitcoin share the same characteristics as a financial asset? Empirical evidence through the monetary policy

Thư

Dương

2020

Sci. Tech. Dev. J. Econ. Law. Manag.

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The cryptocurrency market, especially Bitcoin, has been received much attention from investors in the market. They often pay attention to which factors determine Bitcoin prices in order to make an investment decision more correctly. Therefore, the research focuses on the determinants of Bitcoin prices in the market based on previous studies relevant to stocks. In addition, to control variables including stock prices, gold prices, and exchange rates, the study also emphasizes on the monetary policy of the two great countries considered to have a strong influence on the volatility of the cryptocurrency market, the US and China. Data in the research are collected from reliable sources (coinmarketcap.com for Bitcoin data and Euromonitor for data on interest rates of the monetary policy). The study collects daily data for Bitcoin prices and monthly data for macroeconomic variables in the period of 2010 – 2018. With regard to the time series data, the research applies two econometric methods, GARCH and EGARCH, to evaluate the difference between positive and negative shocks of the monetary policy towards Bitcoin prices. The results indicate that interest rates of the Chinese and American monetary policy have a converse relationship with Bitcoin prices. Besides, control variables show a statistically significant association with Bitcoin prices. In conclusion, the research suggests that Bitcoin has the characteristics of a financial asset based on its similarities over determinants between stocks and Bitcoin.

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“…Empirical research (for instance Prasad and Rajan, 1995;Dinenis and Staikouras, 1998;Reilly et al, 2007, Al-Mukit, 2013 Korkeamäki, (2011) suggest a declining exposure to the interest rate risk largely due to the emergence of frameworks to manage interest rate risk. According to Moya-Martínez, et al (2013), the explosive growth in the interest rate derivative markets and the expansion of corporate bond markets may account for the observed reduction in the sensitivity of stock returns to changes in interest rates.…”

Section: Section 2: Related Literaturementioning

confidence: 99%

Time Series Analysis of Interest Rates Volatility and Stock Returns in Ghana

Ahiadorme

Sonyo

Ahiase

2019

Emerging Economy Studies

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The study utilized time series analysis models and employed the Johansen’s cointegration procedure and the vector error correction model to examine the short-run and long-run dynamics of the relationship between interest rates and stock market returns. The results of this study show that contrary to popular evidence from extant research, interest rate changes positively and significantly affect stock market returns in the long run and the deviation from the long-run equilibrium is corrected each period following a shock to the stock market in the short run. The positive linkages between interest rate changes and stock market outturns may be explained by the relative strength of banking stocks on the Ghana Stock Exchange. The analysis shows that as the long-run equilibrium is approached, the deviations in the short term decrease significantly.

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Interest rate changes and stock returns in Spain: A wavelet analysis

Cited by 53 publications

References 45 publications

Stock‐bond Co‐movements and Flight‐to‐quality in G7 Countries: A Time‐frequency Analysis

Stock‐bond Co‐movements and Flight‐to‐quality in G7 Countries: A Time‐frequency Analysis

Does Bitcoin share the same characteristics as a financial asset? Empirical evidence through the monetary policy

Time Series Analysis of Interest Rates Volatility and Stock Returns in Ghana

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