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Returns and Interest Rate: A Nonlinear Relationship in the Bogotá Stock Market

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Author Info
Luis Eduardo Arango ()
Andrés González
Carlos Esteban Posada ()

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Abstract

This work presents some evidence of the nonlinear and inverse relationschip between the share prices on the Bogotá stock market and the interest rate as measured by the interbank loan interest rate, which is to some extent affected by monetary policy. The model captures the stylised fact on this market of higt dependence of returns in short market in Colombia. Evidence of a non constant equity premium is also found. The work uses daily data from january 1994 up to February 2000.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 169.

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Handle: RePEc:bdr:borrec:169

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Keywords: nonlinearities stock returns interest rate smooth transition regression GARCH models.

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Baillie, Richard T & Bollerslev, Tim, 1989. "The Message in Daily Exchange Rates: A Conditional-Variance Tale," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 297-305, July.
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  2. Campbell, John Y., 1999. "Asset prices, consumption, and the business cycle," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 19, pages 1231-1303 Elsevier. [Downloadable!] (restricted)
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  3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May. [Downloadable!] (restricted)
  4. repec:att:wimass:199520 is not listed on IDEAS
  5. Brooks, Christopher, 1996. "Testing for Non-linearity in Daily Sterling Exchange Rates," Applied Financial Economics, Taylor and Francis Journals, vol. 6(4), pages 307-17, August. [Downloadable!] (restricted)
  6. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June. [Downloadable!] (restricted)
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  7. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Proceedings, Federal Reserve Bank of Kansas City, pages 77-128. [Downloadable!]
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  8. van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000. "Smooth Transition Autoregressive Models - A Survey of Recent Developments," Working Paper Series in Economics and Finance 380, Stockholm School of Economics, revised 17 Jan 2001. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. María Clara Aristizábal Restrepo, . "Evaluación asimétrica de una red neuronal artificial:Aplicación al caso de la inflación en Colombia," Borradores de Economia 377, Banco de la Republica de Colombia. [Downloadable!]
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