The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model

Tarek Eldomiaty (), Yasmeen Saeed, Rasha Hammam and Salma AboulSoud
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Tarek Eldomiaty: Misr International University
Yasmeen Saeed: Misr International University
Rasha Hammam: Misr International University
Salma AboulSoud: Arab Open University Egypt

Journal of Economics, Finance and Administrative Science, 2020, vol. 25, issue 49, 149-161

Abstract: Purpose – This paper aims to examine the effect of both inflation rate and interest rate on stock prices using quarterly data on non-financial firms listed in DJIA30 and NASDAQ100 for the period 1999-2016. The stock duration model is used to measure the sensitivity in variations in inflation rates and interest rates on stock prices. Design/methodology/approach – The authors use standard statistical tools that include Johansen cointegration test, linearity, normality tests, cointegration regression, Granger causality and vector error correction model. Findings – The results of panel Johansen cointegration analysis show that cointegration exists between the stock prices, the changes in stock prices due to inflation rates and the changes in stock prices due to real interest rates. The results of cointegration regression show that inflation rates are negatively associated with stock prices, the real interest rates and stock prices are positively associated, changes in real interest rates and inflation rates Granger cause significant changes in stock prices, significant speed of adjustment to long run equilibrium between observed stock prices and real interest rates and significant speed of adjustment to long run equilibrium between changes in stock prices due to real interest rates and changes in inflation rates.

Keywords: Stock; Rates; DJINA; NASDAQ; Cointegration; Causality; VECM; Inflation rates; Real interest rates; Stock duration model; Cointegration causality; Stock prices; Dow Jones (search for similar items in EconPapers)
JEL-codes: C58 E31 E43 E44 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:joefas:0162

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