The Long Run Relationship Between Stock Market Capitalization Rate and Interest Rate: Co-integration Approach

Toraman, Cengiz; Başarır, Çağatay

doi:10.1016/j.sbspro.2014.07.557

Cited by 14 publications

(16 citation statements)

References 6 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Largely, the studies on the nexus between interest rate changes and stock returns produce mixed outturns: Shah et al (2012) demonstrate a unidirectional causality from interest rate to the stock market index in Pakistan; Cifter and Ozun (2007) observe causality between interest rates and stock returns for the economy of Turkey; Joseph and Vezos (2006) find high sensitivity of stock returns to changes in interest rate; Pallegdara (2012) finds no causal relationships between interest rate changes and stock market returns in the short run while Kurihara and Nezu (2006) conclude that there is insignificant relationship between interest rates and stock prices for the Japanese stock market; In another study of Turkey, Toraman and Başarir (2014) conclude that there is a long-run relationship between interest rate changes and stock market outturns.…”

Section: Section 2: Related Literaturementioning

confidence: 99%

See 1 more Smart Citation

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

Ahiadorme

Sonyo

Ahiase

2019

Emerging Economy Studies

View full text Add to dashboard Cite

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.

show abstract

Section: Section 2: Related Literaturementioning

confidence: 99%

“…The variables for this study were informed by previous studies (Al-Mukit, 2013;Ibrahim & Musah, 2014;Toraman & Başarir, 2014) and data availability. The variables used are as follows: GSE All-Share Index/Composite Index: This is the dependent variable.…”

Section: Study Variablesmentioning

confidence: 99%

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

Ahiadorme

Sonyo

Ahiase

2019

Emerging Economy Studies

View full text Add to dashboard Cite

show abstract

“…They claim that a strong dollar stimulates stock prices both in the short-run and long-run, but not vice versa. Toraman and Basarir (2014) obtain nonstationary results for the interest rate and stock market capitalization for Turkey and explore a cointegration relationship by the Johansen methodology. Taufeeq et al (2017) benefit from the NARDL model and detect a nonlinear negative effect of domestic currency depreciation and the interest rate on stock market returns.…”

Section: Literature Reviewmentioning

confidence: 99%

Loom of Symmetric Pass-Through

Şahin

2019

Economies

View full text Add to dashboard Cite

This paper analyzes the effects of the real policy interest rate on the banking sector lending rate, the deposit rate, real stock prices, and the real exchange rate using the Engle Granger cointegration method (EG), the vector error-correction model (VECM), and the nonlinear vector error-correction model (NVECM) with monthly Turkish data over the period January 2002–April 2018. (1) EG results indicate bivariate cointegration relationships between the real interest rate, lending rates, and the deposit rate. The real interest rate increases all lending rates, mainly the housing rate. However, the long-run coefficient for the real exchange rate is not statistically significant. The pass-through is higher for the deposit rate than for lending rates. Moreoever, real stock prices shrink substantially where the finance sector has been affected the most. (2) VECM results indicate a cointegration relationship between all the variables except for the real exchange rate, which has a statistically non-significant pass-through coefficient. The real interest rate has a noteworthy long-run positive effect on the housing loans lending rate compared to others. The affirmative effect on real stock prices is the highest for the technology sector. The short-run effect of the real interest rate on lending rates, real stock prices and the real exchange rate are statistically non-significant except for the overall stock price index, and the vehicle loans lending rate which has a higher coefficient than the deposit rate. (3) NVECM results allow testing of eleven hypotheses and highlight the symmetric relationship and the valid pass-through effect, and reject the strong exogeneity assumption for all variables.

show abstract

“…As a result, Johansen cointegration test enables determining of the number of cointegration relationship and its parameters (Toraman and Basarir, 2014).…”

Section: Johansen Cointegration Approachmentioning

confidence: 99%