Interest Rate Volatility and Stock Returns: A GARCH (1,1) Model
The present study attempts to examine the dual impact of changes in interest rate and interest rate volatility on the mean and variance of portfolio stock returns. The study period is from 1st April 1996 to 30th August 2014 covering a total period of approximately 18 years. Sample used in the study...
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| Format: | Article |
| Language: | English |
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Ramanujan College, University of Delhi, Delhi, India
2017-11-01
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| Series: | Ramanujan International Journal of Business and Research |
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| Online Access: | https://rijbr.in/1/article/view/133/133 |
| _version_ | 1797659968570130432 |
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| author | Dr. K. Latha Dr. Sunita Gupta Dr. Renu Ghosh |
| author_facet | Dr. K. Latha Dr. Sunita Gupta Dr. Renu Ghosh |
| author_sort | Dr. K. Latha |
| collection | DOAJ |
| description | The present study attempts to examine the dual impact of changes in interest rate and interest rate volatility on the mean and variance of portfolio stock returns. The study period is from 1st April 1996 to 30th August 2014 covering a total period of approximately 18 years. Sample used in the study consist of portfolio of financial and non-financial firms listed in the S& P CNX 500 equity index. The effect of interest rate changes and volatility on distribution of stock returns is analyzed using the GARCH (1,1) model.
The effect of interest rate changes is found to be higher for financial firms as compared to non-financial firms. Interest rate volatility is found to be the significant factor affecting mean and variance of non-financial firms stock returns. Overall, the effect of interest rate volatility on stock returns and conditional stock returns volatility is evident from the results. If interest rate becomes more volatile it would also increase the volatility of conditional stock returns. When the interest rate volatility is included in the variance equation it is found that in case of those firm's where interest rate sensitivity coefficient is not significant, coefficient of interest rate volatility is significant implying that if changes in interest rate are small then these firm's are able to hedge themselves but if volatility of interest rate increases beyond a limit, it would also make the conditional returns of these firms' more volatile. |
| first_indexed | 2024-03-11T18:23:56Z |
| format | Article |
| id | doaj.art-497a22fe8a044eb1b5e90dc9f5b383fe |
| institution | Directory Open Access Journal |
| issn | 2455-5959 2583-0171 |
| language | English |
| last_indexed | 2024-03-11T18:23:56Z |
| publishDate | 2017-11-01 |
| publisher | Ramanujan College, University of Delhi, Delhi, India |
| record_format | Article |
| series | Ramanujan International Journal of Business and Research |
| spelling | doaj.art-497a22fe8a044eb1b5e90dc9f5b383fe2023-10-14T10:57:13ZengRamanujan College, University of Delhi, Delhi, IndiaRamanujan International Journal of Business and Research2455-59592583-01712017-11-01215774https://doi.org/10.51245/rijbr.v2i1.2017.133Interest Rate Volatility and Stock Returns: A GARCH (1,1) ModelDr. K. Latha0Dr. Sunita Gupta1Dr. Renu Ghosh2Department of Commerce, Ramanujan College, University of DelhiDepartment of Commerce, Kamala Nehru College, University of DelhiDepartment of Commerce, Rajdhani College, University of DelhiThe present study attempts to examine the dual impact of changes in interest rate and interest rate volatility on the mean and variance of portfolio stock returns. The study period is from 1st April 1996 to 30th August 2014 covering a total period of approximately 18 years. Sample used in the study consist of portfolio of financial and non-financial firms listed in the S& P CNX 500 equity index. The effect of interest rate changes and volatility on distribution of stock returns is analyzed using the GARCH (1,1) model. The effect of interest rate changes is found to be higher for financial firms as compared to non-financial firms. Interest rate volatility is found to be the significant factor affecting mean and variance of non-financial firms stock returns. Overall, the effect of interest rate volatility on stock returns and conditional stock returns volatility is evident from the results. If interest rate becomes more volatile it would also increase the volatility of conditional stock returns. When the interest rate volatility is included in the variance equation it is found that in case of those firm's where interest rate sensitivity coefficient is not significant, coefficient of interest rate volatility is significant implying that if changes in interest rate are small then these firm's are able to hedge themselves but if volatility of interest rate increases beyond a limit, it would also make the conditional returns of these firms' more volatile.https://rijbr.in/1/article/view/133/133stock returnsinterest rategarch (11)financial sector and non-financial sector |
| spellingShingle | Dr. K. Latha Dr. Sunita Gupta Dr. Renu Ghosh Interest Rate Volatility and Stock Returns: A GARCH (1,1) Model Ramanujan International Journal of Business and Research stock returns interest rate garch (1 1) financial sector and non-financial sector |
| title | Interest Rate Volatility and Stock Returns: A GARCH (1,1) Model |
| title_full | Interest Rate Volatility and Stock Returns: A GARCH (1,1) Model |
| title_fullStr | Interest Rate Volatility and Stock Returns: A GARCH (1,1) Model |
| title_full_unstemmed | Interest Rate Volatility and Stock Returns: A GARCH (1,1) Model |
| title_short | Interest Rate Volatility and Stock Returns: A GARCH (1,1) Model |
| title_sort | interest rate volatility and stock returns a garch 1 1 model |
| topic | stock returns interest rate garch (1 1) financial sector and non-financial sector |
| url | https://rijbr.in/1/article/view/133/133 |
| work_keys_str_mv | AT drklatha interestratevolatilityandstockreturnsagarch11model AT drsunitagupta interestratevolatilityandstockreturnsagarch11model AT drrenughosh interestratevolatilityandstockreturnsagarch11model |