IDEAS home Printed from https://ideas.repec.org/a/eme/jefasp/jefas-10-2018-0105.html
   My bibliography  Save this article

The associations between stock prices, inflation rates, interest rates are still persistent

Author

Listed:
  • Tarek Eldomiaty
  • Yasmeen Saeed
  • Rasha Hammam
  • Salma AboulSoud

Abstract

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.

Suggested Citation

  • Tarek Eldomiaty & Yasmeen Saeed & Rasha Hammam & Salma AboulSoud, 2019. "The associations between stock prices, inflation rates, interest rates are still persistent," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 25(49), pages 149-161, October.
    • Handle: RePEc:eme:jefasp:jefas-10-2018-0105
    DOI: 10.1108/JEFAS-10-2018-0105
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JEFAS-10-2018-0105/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: no
    File URL: https://www.emerald.com/insight/content/doi/10.1108/JEFAS-10-2018-0105/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: no
    File URL: https://libkey.io/10.1108/JEFAS-10-2018-0105?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Puneet Vatsa & Hem C. Basnet & Franklin G. Mixon & Kamal P. Upadhyaya, 2024. "Stock Markets Cycles and Macroeconomic Dynamics," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 30(3), pages 255-278, August.
    2. Adnan Ali Shahzad & Shabbir Ahmad & Naveed Hayat & Muhammad Imran & Jamshaid Ur Rehman, 2022. "Impact Of Oil Price, Exchange Rate, And Interest Rate On Stock Market Of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(1), pages 172-183.
    3. Simarjeet Singh & Nidhi Walia & Stelios Bekiros & Arushi Gupta & Jigyasu Kumar & Amar Kumar Mishra, 2022. "Risk-managed time-series momentum: an emerging economy experience," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 27(54), pages 328-343, November.
    4. Maake Trecy & Semosa Donald & Ogujiuba Kanayo & Lethabo Maponya, 2024. "An Econometric Analysis of Inflation, Exchange Rate, and Interest Rate on Stock Market Performance in South Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 14(6), pages 357-368, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jefasp:jefas-10-2018-0105. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.