Interest rate dynamic effect on stock returns and central bank transparency: Evidence from emerging markets
Stephanos Papadamou (),
Moise Sidiropoulos and
Eleftherios Spyromitros ()
Research in International Business and Finance, 2017, vol. 39, issue PB, 951-962
Interest rate dynamic effect on stock returns is examined under different levels of central bank transparency under an asset pricing context. Using a large set of emerging countries in a panel data framework, we provide evidence for a negative link between stock returns and interest rate differences. However, this negative effect is reduced significantly under a transparent central bank, underlying a non-linear impact on stock returns. Our study is focused on a period from 1998 to 2008 where fundamental changes in the level of central banks’ transparency were occurred. Our findings imply that restrictive monetary policies under high levels of transparency lead to smoother reductions on stock returns with significant benefits for financial stability.
Keywords: Central bank transparency; Stock markets; Asset pricing; Panel data (search for similar items in EconPapers)
JEL-codes: E52 E58 G1 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:39:y:2017:i:pb:p:951-962
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