Investigation of Relationship between Stock Prices, Interest Rate and Exchange Rate Fluctuations

Amir Haji Ahmadi and Tahmineh Sanei Emamgholi

Journal of Empirical Economics, 2014, vol. 2, issue 4, 182-189

Abstract: One of the most important matters that has always been considered in the stock market is analysis of the effects of economic condition on stock price changes, and these changes are the prime cause for fluctuations of stock price index. As long as the value of stock in the stock exchange is influenced by various factors particularly macroeconomic variables, this study aims at examining the relationship between stock price on one side and bank interest rate as well as currency rate fluctuations on the other side. In this study, the relationship between stock price and bank interest rate as well as currency rate fluctuations is tested using data collected from 50 distinguished (more active) firms as the sample. The data was analyzed utilizing autoregression model, Johansen test, Augmented Dickey-Fuller test, forecasting error analysis of variance, effect statistic tests, and maximum likelihood estimation. In this research, the time period under study is the years between 2008 and 2012. The results of the study revealed that although the real rate of bank interest and market currency rate had negative effects on the index of 50 distinguished firms of the stock exchange, the nominal rate of bank interest and reference currency rate had positive and significant effects on the index of 50 firms of the stock exchange. In other words, testing hypotheses of the study showed that there was a significant correlation between market currency rate and price index of 50 distinguished firms of the stock exchange and that there was also a significant correlation between the real rate of bank interest and price index of 50 distinguished firms of the stock exchange.

Keywords: Stock price; Market currency rate; Reference currency rate; Real rate of bank interest; Bank interest rate. (search for similar items in EconPapers)
Date: 2014
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