Estimating the Effects of Interest Rates on Share Prices Using Multi-scale Causality Test in Emerging Markets: Evidence from Turkey

Atilla Cifter and Alper Ozun

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the impacts of changes in interest rates on stock returns by using wavelet analysis with Granger causality test. Financial time series in non-coherent markets should be analyzed by advanced methods capturing complexity of the markets and non-linearities in stock returns. As a semi-parametric method, wavelets analysis might be superior to detect the chaotic patterns in the non-coherent markets. By using daily closing values of the ISE 100 Index and compounded interest rates, it is proven that and starting with 9 days time-scale effect interest rate is granger cause of ISE 100 index and the effects of interest rates on stock return increases with higher time-scales. This evidence shows that bond market has significant long-term effect on stock market for Turkey and traders should consider long-term money markets changes as well as short-term changes.

Keywords: Interest rates; Emerging markets; Wavelets; Stock returns; Multi-scale Granger causality (search for similar items in EconPapers)
JEL-codes: C14 C45 (search for similar items in EconPapers)
Date: 2007-03-01
New Economics Papers: this item is included in nep-cwa
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:2485

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