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Interest rates volatility and its consequences on stock returns: The case study from Amman Stock Exchange, Jordan

Author

Listed:
  • Nada I. Abu ALJARAYESH
  • Lama K. ASFOUR
  • Shadi Y. Al-ABDALLAH

    (University of Jordan)

Abstract

This paper examines the special effects of interest rates on the stock market return by using monthly time series data for the economy of Jordan over the period of 2006 to 2016. An extensive variety of econometric procedures have been involved to analyze the relationship between the interest rate and stock market return. The study exposes a constant and significant long-run relationship between the variables. By using Cointegration methods the experimental in the long run represents that a one percent rise in interest rate causes (12.3459 %)reduction in market index. The assessed error correction coefficient highlight that (-0.678522) percent deviation of stock returns are corrected in the short run. Impulse response function of the study furthermore sustains the positive relationship between the variables. The result of Variance decompositions recommends that about (99.99705%) of the variation in stock market returns is referring to its own shock which denotes that stock market returns are mostly independent of the other variables in the structure. To go over the main points, Granger causality analysis yield that there is no presence of a unidirectional causality as of interest rate to the market index.

Suggested Citation

  • Nada I. Abu ALJARAYESH & Lama K. ASFOUR & Shadi Y. Al-ABDALLAH, 2018. "Interest rates volatility and its consequences on stock returns: The case study from Amman Stock Exchange, Jordan," Journal of Economics Library, EconSciences Journals, vol. 5(2), pages 149-160, June.
    • Handle: RePEc:cvv:journ5:v:5:y:2018:i:2:p:149-160
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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