The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet Analysis
This paper examines the multi-scale relationship between the interest rate, exchange rate and stock price using a wavelet transform. In particular, we apply the maximum overlap discrete wavelet transform (MODWT) to the interest rate, exchange rate and stock price in US over the period from january...
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| Format: | Article |
| Language: | English |
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EconJournals
2011-10-01
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| Series: | International Journal of Economics and Financial Issues |
| Online Access: | http://mail.econjournals.com/index.php/ijefi/article/view/47 |
| _version_ | 1797911500696846336 |
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| author | Mohamed Essaied Hamrita Abdelkader Trifi |
| author_facet | Mohamed Essaied Hamrita Abdelkader Trifi |
| author_sort | Mohamed Essaied Hamrita |
| collection | DOAJ |
| description |
This paper examines the multi-scale relationship between the interest rate, exchange rate and stock price using a wavelet transform. In particular, we apply the maximum overlap discrete wavelet transform (MODWT) to the interest rate, exchange rate and stock price in US over the period from january 1990 to december 2008 and using the definitions of wavelet variance, wavelet correlation and cross-correlations to analyze the association as well as the lead/lag relationship between these series at the different time scales. Our results show that the relationship between interest rate and exchange rate is not significantly different from zero at all scales. On the other hand, the relationship between interest rate returns and stock index returns is significantly different from zero only at the highest scales. The exchange rate returns and stock index returns have a bidirectional relationship in this period at longer horizons.
Keywords: Wavelet analysis; Interest rate; Stock price; Wavelet cross-correlation; Granger causality
JEL Classifications: C02; C22
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| first_indexed | 2024-04-10T11:41:44Z |
| format | Article |
| id | doaj.art-3ff46e3f50e24b0c805198dafc37bfe6 |
| institution | Directory Open Access Journal |
| issn | 2146-4138 |
| language | English |
| last_indexed | 2024-04-10T11:41:44Z |
| publishDate | 2011-10-01 |
| publisher | EconJournals |
| record_format | Article |
| series | International Journal of Economics and Financial Issues |
| spelling | doaj.art-3ff46e3f50e24b0c805198dafc37bfe62023-02-15T16:17:31ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382011-10-0114The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet AnalysisMohamed Essaied Hamrita0Abdelkader Trifi1University of MonastirISET Ksar-Hellal This paper examines the multi-scale relationship between the interest rate, exchange rate and stock price using a wavelet transform. In particular, we apply the maximum overlap discrete wavelet transform (MODWT) to the interest rate, exchange rate and stock price in US over the period from january 1990 to december 2008 and using the definitions of wavelet variance, wavelet correlation and cross-correlations to analyze the association as well as the lead/lag relationship between these series at the different time scales. Our results show that the relationship between interest rate and exchange rate is not significantly different from zero at all scales. On the other hand, the relationship between interest rate returns and stock index returns is significantly different from zero only at the highest scales. The exchange rate returns and stock index returns have a bidirectional relationship in this period at longer horizons. Keywords: Wavelet analysis; Interest rate; Stock price; Wavelet cross-correlation; Granger causality JEL Classifications: C02; C22 http://mail.econjournals.com/index.php/ijefi/article/view/47 |
| spellingShingle | Mohamed Essaied Hamrita Abdelkader Trifi The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet Analysis International Journal of Economics and Financial Issues |
| title | The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet Analysis |
| title_full | The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet Analysis |
| title_fullStr | The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet Analysis |
| title_full_unstemmed | The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet Analysis |
| title_short | The Relationship between Interest Rate, Exchange Rate and Stock Price: A Wavelet Analysis |
| title_sort | relationship between interest rate exchange rate and stock price a wavelet analysis |
| url | http://mail.econjournals.com/index.php/ijefi/article/view/47 |
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