The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model
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 a...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2020-06-01
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| Series: | Journal of Economics Finance and Administrative Science |
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| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JEFAS-10-2018-0105/full/pdf?title=the-associations-between-stock-prices-inflation-rates-interest-rates-are-still-persistent-empirical-evidence-from-stock-duration-model |
| _version_ | 1811299107558391808 |
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| author | Tarek Eldomiaty Yasmeen Saeed Rasha Hammam Salma AboulSoud |
| author_facet | Tarek Eldomiaty Yasmeen Saeed Rasha Hammam Salma AboulSoud |
| author_sort | Tarek Eldomiaty |
| collection | DOAJ |
| description | 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. Originality/value - This paper contributes to the empirical literature in three ways. The paper examines the effects of inflation and interest rates on stock prices differently from other related studies by separating inflation from real interest rates. The paper examines the causality between stock prices, interest and inflation rates. This paper offers significant updated validity to extended literature that a negative association exists between stock prices and inflation rates. This validity can be considered as an existence a theory of stock prices, inflation rates and interest rates. |
| first_indexed | 2024-04-13T06:30:16Z |
| format | Article |
| id | doaj.art-b20bac3132dd45338faab0f477084785 |
| institution | Directory Open Access Journal |
| issn | 2077-1886 |
| language | English |
| last_indexed | 2024-04-13T06:30:16Z |
| publishDate | 2020-06-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | Journal of Economics Finance and Administrative Science |
| spelling | doaj.art-b20bac3132dd45338faab0f4770847852022-12-22T02:58:11ZengEmerald PublishingJournal of Economics Finance and Administrative Science2077-18862020-06-01254914916110.1108/JEFAS-10-2018-0105634487The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration modelTarek Eldomiaty0Yasmeen Saeed1Rasha Hammam2Salma AboulSoud3Department of Business Administration, Misr International University, Cairo, EgyptDepartment of Business Administration, Misr International University, Cairo, EgyptDepartment of Business Administration, Misr International University, Cairo, EgyptSchool of Business Studies, Arab Open University Egypt, Cairo, EgyptPurpose - 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. Originality/value - This paper contributes to the empirical literature in three ways. The paper examines the effects of inflation and interest rates on stock prices differently from other related studies by separating inflation from real interest rates. The paper examines the causality between stock prices, interest and inflation rates. This paper offers significant updated validity to extended literature that a negative association exists between stock prices and inflation rates. This validity can be considered as an existence a theory of stock prices, inflation rates and interest rates.https://www.emerald.com/insight/content/doi/10.1108/JEFAS-10-2018-0105/full/pdf?title=the-associations-between-stock-prices-inflation-rates-interest-rates-are-still-persistent-empirical-evidence-from-stock-duration-modelstockratesdjinanasdaqcointegrationcausalityvecminflation ratesreal interest ratesstock duration modelcointegration causalitystock pricesdow jones |
| spellingShingle | Tarek Eldomiaty Yasmeen Saeed Rasha Hammam Salma AboulSoud The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model Journal of Economics Finance and Administrative Science stock rates djina nasdaq cointegration causality vecm inflation rates real interest rates stock duration model cointegration causality stock prices dow jones |
| title | The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model |
| title_full | The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model |
| title_fullStr | The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model |
| title_full_unstemmed | The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model |
| title_short | The associations between stock prices, inflation rates, interest rates are still persistent: Empirical evidence from stock duration model |
| title_sort | associations between stock prices inflation rates interest rates are still persistent empirical evidence from stock duration model |
| topic | stock rates djina nasdaq cointegration causality vecm inflation rates real interest rates stock duration model cointegration causality stock prices dow jones |
| url | https://www.emerald.com/insight/content/doi/10.1108/JEFAS-10-2018-0105/full/pdf?title=the-associations-between-stock-prices-inflation-rates-interest-rates-are-still-persistent-empirical-evidence-from-stock-duration-model |
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