217-616-1-PB | Financial Markets | Efficient Market Hypothesis

International Journal of Business and Management

March, 2009

Relationship between Interest Rate and Stock Price: Empirical Evidence from Developed and Developing Countries
Md. Mahmudul Alam (Corresponding author) CRM, Marketing Division, Grameenphone Ltd 47 Shantinarar, Dhaka 1217, Bangladesh Tel: 880-1711-503-782 E-mail: rony000@gmail.com

Md. Gazi Salah Uddin Department of Business Administration East West University 43, Mohakhali C/A, Dhaka 1212, Bangladesh E-mail: rimsust2002@yahoo.com Abstract Stock exchange and interest rate are two crucial factors of economic growth of a country. The impacts of interest rate on stock exchange provide important implications for monitory policy, risk management practices, financial securities valuation and government policy towards financial markets. This study seeks evidence supporting the existence of share market efficiency based on the monthly data from January 1988 to March 2003 and also shows empirical relationship between stock index and interest rate for fifteen developed and developing countries- Australia, Bangladesh, Canada, Chile, Colombia, Germany, Italy, Jamaica, Japan, Malaysia, Mexico, Philippine, S. Africa, Spain, and Venezuela. Stationarity of market return is tested and found none of this stock market follows random walk model, means not efficient in weak form. To investigate the reasons of market inefficiency, relationship between share price and interest rate, and changes of share price and changes of interest rate were determined through both time series and panel regressions. For all of the countries it is found that interest rate has significant negative relationship with share price and for six countries it is found that changes of interest rate has significant negative relationship with changes of share price. So, if the interest rate is considerably controlled for these countries, it will be the great benefit of these countries’ stock exchange through demand pull way of more investors in share market, and supply push way of more extensional investment of companies. Keywords: Efficient market hypothesis, Random walk model, Market return, Interest rate, Investment, Panel 1. Introduction In prospects of overall economy, Ologunde, Elumilade, and Asaolu (2006) mentioned that share market makes it possible for the economy to ensure long-term commitments in real capital. For that reason, level of efficiency measurement of the stock market is very important to investors, policy makers and other major players, who ensure long-term real capital in an economy. A mature of the stock market efficiency level is perceived across the globe as a barometer of the economic health and prospect of a country as well as a register of the confidence of domestic and global investors. Interest rate is one of the important macroeconomic variables, which is directly related to economic growth. Generally, interest rate is considered as the cost of capital, means the price paid for the use of money for a period of time. From the point of view of a borrower, interest rate is the cost of borrowing money (borrowing rate). From a lender’s point of view, interest rate is the fee charged for lending money (lending rate). Good investors always look for investing in an efficient market. In an inefficient market few people are able to generate extra ordinary profit causes of confidence losses of general people about the market. In such cases, if the rate of interest paid by banks to depositors increases, people switch their capital from share market to bank. This will lead to decrease the demand of share and to decrease the price of share and vice versa. On the other way, when rate of interest paid by banks to depositors increases, the lending interest rate also increases lead to decrease the investments in the economy
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where the random walk theory is tested. bonds and stock should be beneficial. Gilbertson and Roux (1977. 1990) do not. some other studies related to these same markets (Butler & Malaikah. Afflect-Graves and Hamman (1985) showed semi-strong form efficiency. Grieb & Reyes 1999. 44 . Thompson and Ward (1995) showed that there are some share price dependencies but too small to profitably exploited and concluded that JSE is “operationally efficient” that means only a small group of investors are able to outperform the market. his results show that long-term interest rate explain a major part of the variation in price-dividend ratios and suggests that the high volatility of the stock market is related to the high volatility of long-term bond yields and may be accounted for by changing forecasts of discount rates. Samuelson (1965). Instead of using the short-term interest rate as a proxy for expected inflation. An early rejection of a random walk was found by Niederhoffer & Osborne (1966).Vol. which in turn is positively related to returns on the stock market. So. 3 International Journal of Business and Management which is also another reason of decreasing share price and vice versa. Claessens (1995) in a world bank study reported significant serial correlation in equity returns from 19 emerging markets and suggested that stock prices in emerging markets violates weak form EMH. thinness of trading and illiquidity in the market. deducing that a simultaneous analysis of the returns on bills. Jammine and Hawkins (1974). Zhou (1996) also studied the relationship between interest rates and stock prices using regression analysis. This paper examines the weak form efficiency of stock market for fifteen developed and developing countries. Knight and Afflect-Graves (1983) rejected semi-strong form efficiency but Knight. Kawakatsu & Morey 1999) support non randomness of emerging markets’ stock prices. 1978) found week-form efficiency. He concluded that emerging markets are less efficient than developed markets and that higher return and low risk can be obtained by incorporating emerging market stocks in investors’ portfolios. No. Given the mixed evidence on efficiency of JSE. He found that interest rates have an important impact on stock returns. 4. and Working (1960) could not reject a random walk. Poshakwale (1996) found the evidence of non-randomness stock price behavior and the market inefficiency (not weak-form efficient) on the Indian market. which. this paper further investigates the dimension of relationship between Share Price and Interest Rate. Fama (1981) argues that expected inflation is negatively correlated with anticipated real activity. Harvey (1993) stated that stock returns of emerging countries are highly predictable and have low correlation with stock returns of developed countries. Poterba & Summers (1988) argued that there is little theoretical basis for strong attachment to the null hypothesis that stock prices follow a random walk. Therefore. He explained that the inefficiency might be due to delay in operations and high transaction cost. which in turn is positively related to returns on the stock market. Kaul (1990) explicitly models the relationship between expected inflation and stock market returns. but the hypothesis that expected stock returns move one-for-one with ex ante interest rates is rejected. Hadassin (1976) and Du Toit (1986) reject week-form efficiency. While working on Johannesburg Stock Exchange (JSE). the influence of the long-term interest rate on stock prices stems directly from the present value model through the influence of the long-term interest rate on the discount rate. especially on long horizons. On the other hand. stock market returns should be negatively correlated with expected inflation. In addition. Gilbertson (1976) found evidence supporting strong-form efficiency. Campbell (1987) analyzed the relationship between the yield spread and stock market returns. Review of empirical evidence The findings from the empirical testing of the efficient market hypothesis (i. but Affleck-Graves and Money (1975). The relationship between stock prices and interest rates has received considerable attention in the literature. and Panas. that assumes consecutive price changes are independent and identically distributed over time so that past values of the index cannot be used to forecast the current values. Although some studies (Balaban 1995. Lo & MacKinlay (1988) investigated the sampling distributions of variance ratios over different sampling intervals and found that stock returns do not follow a random walk. according to the proxy hypothesis of Fama (1981) should be negatively related since expected inflation is negatively correlated with anticipated real activity. and there is plenty of evidence suggesting that stock prices do follow a random walk. Khababa (1998) has examined the behavior of stock price in the Saudi Financial market seeking evidence that for weak-form efficiency and found that the market was not weak-form efficient.. Urrutia 1995.e. Rather than using either short-term or long-term interest rates. theoretically there is inverse relationship between share price and interest rate. and Changes of Share Price with Changes of Interest Rate. Early studies by Fama (1965). random walk) with stock prices have been mixed. which is often proxied by the short-term interest rate. To investigate the reasons of market inefficiency. Kaul (1990) studied the relationship between expected inflation and the stock market. His results support the effectiveness of the term structure of interest rates in predicting excess returns on the US stock market. 1992. He argues that the same variables that have been used to predict excess returns in the term structure also predicts excess stock returns. Shiller (1989) indicated that there are reasons that the random-walk behaviour of stock prices should hold. but Knight and Firer (1989) rejected the strong-form efficiency. 2.

2009 Lee (1997) used three-year rolling regressions to analyze the relationship between the stock market and the short-term interest rate. Harasty and Roulet (2000) worked on 17 developed countries and showed that stock prices are cointegrated with earnings (a proxy for dividends) and the longterm interest rate in each country (except the Italian market for which the short-term interest rate was used). He tried to forecast excess returns (i. for fifteen developed and developing countries. Canada. Data. Uddin and Alam (2007) examines the linear relationship between share price and interest rate. and another one is Australia. Japan. Germany. Stocks did well during this period. and changes of share price and changes of interest rate on Dhaka Stock Exchange (DSE). Consistent with Kaul’s results. seven are developed countries (Australia. model and methodology The sample includes fifteen countries’ monthly observations from January 1988 to March 2003. South Africa. three from Europe (Italy. it was found that Interest Rate has significant negative relationship with Share Price and Changes of Interest Rate has significant negative relationship with Changes of Share Price. PI t-1= the price index at period t-1. or a depressing effect on investment and hence on expected future profits. Arango (2002) found that some evidence of the nonlinear and inverse relationship between the share prices on the Bogota stock market and the interest rate as measured by the inter bank loan interest rate. three from South America (Chile. Out of fifteen countries.International Journal of Business and Management March. Spain) and eight are developing countries (Bangladesh. Malaysia. Jefferis and Okeahalam (2000) worked on South Africa. Also as representative of share price. Italy. real interest rate. 3. inflation was low. both in nominal and real terms.” and “Stock Exchange Index”. Jamaica. the tools of stationarity of share prices is tested by using market returns. geographic locations and data availability in IFS. Germany.“Schedule Banks Fixed (3-6) Mos. Hsing (2004) adopts a structural VAR model that allows for the simultaneous determination of several endogenous variables such as. PI t = price index at period t. For all of the cases. the 1929 to 1949 cycle. To test the randomness of market. Spyrou (2001) found that inflation and stock returns are negatively related. the stock market index and found that there is an inverse relationship between stock prices and interest rate. From the late 1940’s to the mid 1960’s. Mexico. but only up to 1995 after which the relationship became insignificant. which is to some extent affected by monetary policy. but found that the relationship is not stable over time. and real estate and commodity prices has been known through history. this study will test the random walk model and check the effects of Share Price on Interest Rate and Changes of Share Prices on Changes of Interest Rate. Colombia. share market index is considered because it is considered as less risky return from market. That relationship can be observed in the 1877 to 1906 cycle. Philippine. Canada. and the 1949 to 1966 cycle. more relevant to the period subsequent to World War II. Bank Deposit Rate is used because deposit rate usually refers to rates offered to resident customers for demand time or savings deposits. changes of share price and interest rate. where higher interest rates are hypothesized to depress stock prices through the substitution effect (interest-bearing assets become more attractive relative to shares). one from Africa (South Africa). the 1920 to 1929 cycle. bonds. Venezuela). The data . both in time series and panel approach. and interest rates were both low and stable. where four from Asia (Bangladesh.e. Zordan (2005) said that historical evidence illustrates that stock prices and interest rates are inversely correlated. Botswana and Zimbabwe stock market. Y 1it = 0i + 1i X 1it + u lt (2) 45 . Colombia. As different study shows mixed results. included and excluded outlier. output. Malaysia.is taken from International Financial Statistics (IFS). Mexico). R t = market return at period t. with cycle’s observable well back into the 1880’s. Market returns (Rt) are calculated from the monthly price indices such as follows: R t = Ln (PI t / PI t-1) (1) Where. Philippine). As representative of interest rate data. The model captures the stylized fact on this market of high dependence of returns in short periods. Spyrou (2001) also studied the relationship between inflation and stock returns but for the emerging economy of Greece. share price and changes of interest rate. three from North America (Jamaica. the 1906 to 1920 cycle. ln = natural log Here the linear relationship between the dependent and the independent variables was determined through panel approach for the regression analysis and inferences were drawn based on the regression analysis. Spain). an increase in the discount rate (and hence a reduced present value of future expected returns). It gradually changes from a significantly negative to no relationship. Japan. Venezuela). fifteen countries were selected. or even a positive although insignificant relationship. The inverse relationship between interest-sensitive asset classes like stocks. Based on economic condition. Chile. Selected countries are also geographically well distributed. the differential between stock market returns and the risk-free short-run interest rate) on the Standard and Poor 500 index with the short-term interest rate. exchange rate. These findings do not support any efficiency on the main stock market in Colombia.

At a very low (0. which means fixed effects is more appropriate than random effect.006) significance level (Table-4: Eq-3).Vol. << Table 3>> 4. it is regress Share price (Y ) on Interest Rate (X ) to look at how prevailing Interest Rate influences the 1 1 Price of Stock Market. Y = changes of share price at period t.95 for two way fixed effects. Changes of Share Price and Changes of Interest Rate are calculated from monthly Share Price and monthly Interest Rate such as follows: Y = 100 * [Y 2 1 (t) . No. it is found that Changes of Interest Rate (X ) has significant relationship on Changes of Share Price (Y ) and the coefficient of 2 2 46 . X = interest rate at period t.0001) significance level (Table-3: Eq-2). -0.03 for one way fixed effect and -0. that means there are fixed effects. 4. At a very low (0.3 Panel data analysis on changes of interest rate & changes of share price The probability of F test for no fixed effects cannot be accepted at 97% confidence interval for one way and at 0.00 significance level for two way fixed effects model. that means there are fixed effects. means none of these market is efficient in week form. -2.068) significance level for two way random effects model. that means one way random effect is better than fixed effect and fixed effect is better than two way random effects. The coefficient of determination (R2) indicates that only 1% of the total variation in the dependent variable is account for by the independent variable by one way fixed effect while 15% of the total variation in the dependent variable is account for by the independent variable by two way fixed effects. But for reporting it is mentioned that at a very low (0.Y 1 (t-1) ] / Y 1 (t-1) (4) X = 100 * [X 2 1 (t) . << Table 2>> The probability of m-test cannot be accepted at 98% confidence levels for one way and at 0.1 Market efficiency test The statistical output of unit root test for individual market suggests that there are serial dependencies of return of all Stock Exchanges.0001) significance level (Table-2: Eq-2).08 for one way fixed effect and -0. shows there is a negative relationship between the two variables.000 significant levels both for one way and two way fixed effects model. << Table 4>> The probability of m-test cannot be rejected at (0. Y = share price at period t. At a very low (0.06) significance level. shows there is a negative relationship 2 between the two variables.2 Panel data analysis on interest rate & share price The probability of F test for no fixed effects cannot be accepted at 0. Y 2 1 (t) 1 (t-1) 2 changes of interest rate at period t. The coefficient of determination (R ) indicates that 37% of the total variation in the dependent variable is account for by the independent variable by one way fixed effect. X = interest rate at period t-1. X = Where. 3 International Journal of Business and Management In equation-2. it is found that Interest Rate (X ) has significant relationship on Share price (Y ) and the coefficient of independent 1 1 variable. it is regressed Changes of Share Price (Y ) on Changes of Interest Rate (X ) to look at how prevailing 2 2 Changes of Interest Rate influences the Changes of Price of Stock Market.X 1 (t-1) ] / X 1 (t-1) (5) = share price at period t-1.000 significance level for two way random effects model.18 for two way random effects. ADF calculated values are significant at 99% confidence level for all 10 degrees of freedom (lags) for all 15 countries suggest that none of these market follows random walk model (Table-1: Eq-1). << Table 1>> 4. Y 2it = 0i + 1i X 2it + u it (3) In equation-3. it is found that Interest Rate (X ) has 1 significant relationship on Share price (Y ) and the coefficient of independent variable. shows there is a negative relationship between the two variables.06 for one way random effect 1 and -1. 1 (t) 1 (t) 4.007) significance level (Table-5: Eq-3). Empirical result and analysis 4. it is found that Changes of Interest Rate (X ) has significant relationship on Changes of Share 2 Price (Y ) and the coefficient of independent variable.41) significance levels for one way and cannot be accepted at (0. -2.02 for two way fixed effects 2 at (0. while 56% of the total variation in the dependent variable is account for by the independent variable by two way fixed effects.

<< Table 6>> 4. 2(5). 34-105. Efficiency and Inefficiency in Thinly Traded Stock Markets: Kuwait and Saudi Arabia. Gonzalez.4 Country-wise time series analysis on interest rate and share price Individual country wise OLS (Table-6: Eq-2) shows (except Malaysia and Philippine) 13 countries data are significant at a very low (0. F76/84. it will be the great benefit for their Stock Exchange through demand pull way of more investor in share market. F. (1992). Africa shows negative relationship for both Interest Rates with Share price and Changes of Interest Rate with Changes of Share Price.002) significance level two way random effects shows a negative relationship (coefficient is -0. A Note on the Random Walk Model and South African Share Prices. 16. (1995). and Money. and Mailaikah. Journal of Financial Economics. if the interest rate is considerably controlled in these countries. real activity. except Philippine all other countries show significant negative relationship either Interest Rates with Share price or Changes of Interest Rate with Changes of Share Price or both. and Venezuela has significant negative relationship between Interest Rates and Share price but no relationship between change of Interest Rate and change of Share Price. means these markets are not efficient in weak form. In overall. Italy. Report No. (1975). 131–151. K. L. (2002). Stock Returns and the Term Structure.data are significant at 95% confidence interval where change of Interest Rate (X ) has significant relationship on 2 change of Share Price (Y ) and the coefficient of independent variable shows there is a negative relationship between 2 two variables. and supply push way of more extensional investment of companies.Y.. 12(11). Technical Analysis and Market Efficiency on the Johannesburg Stock Exchange. The World Bank Economic Review. Chile. 197-210. H. American Economic Review. Return Behaviour in Emerging Stock Markets. << Table 7>> 5. 2009 independent variable is -0. So. 47 . Colombia. E. Jamaica. Journal of Banking and Finance.C. Applied Economics Letters. Japan. (1995). S. for Malaysia it is found that Interest Rate has no relation with Share price but Changes of Interest Rate has negative relationship with Changes of Share Price.International Journal of Business and Management March. Fama. 0119 Gilbertson. Malaysia. 373-399. Four countries like Bangladesh. So. 835-842. E. Colombia. 38. References Affleck-Graves. Interestingly. J. 382-388. and Glen. C. 71. << Table 5>> 4. 9(1). (1987). Arango. The randomness of stock return is the basic assumption of Efficient Market Hypothesis that is violated for all countries’ Stock Exchange. B. Claessens. J. S. J.. In case of Japan. 545-564. The Performance of South African Mutual Funds. J. Pretoria: University of Pretoria. Johannesburg: Johannesburg Consolidated Investment Company.03) between the two variables. E. S. Dasgupta. the theoretical argument of negative relationship between stock price and prevailing interest rate is not rejected. S.5 Country-wise time series analysis on changes of interest rate and changes of share price Individual country wise OLS (Table-7: Eq-3) shows 6 countries’ . The Behavior of Stock Market Prices. Italy. Conclusion This study examines the market efficiency of fifteen countries and also looks about the effect of interest rate on share price and changes of interest rate on changes of share price. Spain. ……… (1981). A. it is found that Interest Rate has positive relationship with Share price but change of Interest Rate has negative relationship with change of Share Price.0001) significance level that Interest Rate (X ) has significant relationship on Share price (Y ).Com degree. Germany. Applied Financial Economics. Working Paper for D. Day of the Week Effects: New Evidence from an Emerging Stock Market. 43(3). (1965). (1976). The South African Journal of Economics. Australia. Mexico. Butler. Canada.Bangladesh. S. E. and Posada. Stock returns. Balaban. where 1 1 except Japan other 12 countries’ coefficient of independent variable shows there is a negative relationship between two variables. 139-143. and S. Du Toit. P. (1986). A. Campbell. Journal of Business. Individual country result is mixed for both developed and developing countries. G. inflation and money.03 for one way random effect and at a very low (0. Africa. Eight countries like. Returns and interest rate: A nonlinear relationship in the Bogotá stock market. 18.

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16* -5.16* -4.0000 Table 3.97 11.0000 0.08* -5. 49 .79* -4.38* -6.80* -4.92* -4.38* -4.03* -6.13* -6.92* -3.41* -4.09 -2.98* -7.98* -4. J.0001 0.29* -6.89* -5.026 R2 F-Value F-Prob.77* -6.98* -6.40* -2.08 93.60* -4.62* -5. Stock Market Fluctuations and the Term Structure.46* -4.93* -4.14* -4.63* -6.33* -4. Unit Root Test: Lag Period Australia Bangladesh Canada Chile Colombia Germany Italy Jamaica Japan Malaysia Mexico Philippine S.23* -4.63* -8.05* -3. 2009 Urrutia.48* 5 -6. Africa Spain Venezuela 1 -9.19* 8 -4.International Journal of Business and Management March. 0.95 t-Value 32.82 p-Value 0.88* -5.0001 R2 0.19* 4 -6.11* -3.38* -3.79* -8.67* -6.01 1. D.07* -7.30* -7.14* -3.86 -2.13* -4.32* -5.29* -9.98* 10 -4.56 F-Value 88.7 -23.29* -8.33* -4.03* -6.22* -4.18 t-Value 15.57* -5.11* -3.27* -7.13* -4.07 111.18* -3.65* -3. Table 4.89* -3.09* -9.01* -4.0057 0.40* -3.08* -4.93 F-Prob.78* -3.06 84.85* -8.79* -6.96* -9. Zordan.48* -6. Board of Governors of the Federal Reserve System.0000 0.20 -1.36* -5.60* -7.64* -4.77* -5.97* -6.53 -23.32* -5.46 -0. Interest Rates.96* -5.45* -7.94 13.72 p-Value 0.54* -6.41* -5.50* -4.08* [Online] * Significant at 99% confidence level Table 2. Stock Prices Regressed on Interest Rate (Eq-2) Method One-way Random Effect Two-way Random Effect Method One-way Fixed Effect Two-way Fixed Effect Model Constant Interest Rate Constant Interest Rate Model Constant Interest Rate Constant Interest Rate Coefficient 95.05* -11.29* -3.61 -13. Investment Survival.86 0.53* -3.88* -4.30* -4.000 0.66* -7.76 0.37* -8.26 0.95* 9 -3.91* 6 -4.80* -3. (1995).18* -7.48* -3.18* -4.18* -4.econometricausa. Stock Prices. Zhou.33* -6.99* -4.0001 0.76* -3.55* -6.52 -0.com/publications/StockPrices.82* -5.69* -3. Journal of Financial Research.73* -4.18* -5.40* -3.0001 0.46* -6.94 -10.15 2.00* -6.66* -4.69* -3.03 0.17 5.01* -9. Illinois.16* -5.83 -0.83* -5.32* -6. Stock Prices Regressed on Interest Rate (Eq-2) Method One-way Fixed Effect Two-way Fixed Effect Model Constant Interest Rate Constant Interest Rate Coefficient 110.20* -6.37 0.0633 0.8390 0.85* -4. Tests of Random Walk and Market Efficiency for Latin American Emerging Markets.15* -5.28* -7.33* -5.pdf Table 1.62 -4. (2005).25* -5.0180 R2 m-Value m-Prob. Changes of Stock Prices Regressed on Changes of Interest Rate (Eq-3) Coefficient 2.61 -3.84* -7.0001 0. J. Finance and Economics Discussion Series: 96/03. C. L.88 -2.62* -3.94* -4.44* -4.64 0.48* -3.86* -2.02 t-Value 3.31* t-Value of ADF for Share Price [for 10 leg period] (Eq-1) 2 -7.31* -3.68* -6.0001 0.85 14.56* -5.58* 7 -4.30* -9.67* -5.0001 0.53* -4.59* -4. 299-309.62* -8.35* -3.54* -4.15 -2.25* -3. 18.0001 0.81 -4.86 p-Value 0.94* -6.35* -4.73 -1.70* -7.71* -4. (1996).20* -7.84* -3.63* -2.88* -4. Econometrica USA.63* -3.44* -3.12* -5.87* -3.06* -6.56 0.0001 0. Available: http://www.50* 3 -6.

0001 0.0001 0.39 0.86 10.0001 0.97 174.86 -27.50 95.81 -3.48 78.16 92.004 0.84 23.69 -1.0001 0.31 0.0001 0.003 0.17 -4.19 -6.03 1.38 34.0001 0.17 * Alternative is acceptable at 95% confidence level.0001 0.04 -0.3670 0.81 0.99 -9.0001 0.04 15.31 -8.92 -9.002 3.0001 0.39 0.78 112.0001 0.0001 0.85 14.26 -6.97 19.03 t-Value 4.0001 0.0001 0.0001 R2 0.84 22.30 -3.23 26.02 0.0001 0.0002 0.26 p-Value 0.51 t-Value 46.71 32.44 49.0001 0.58 -1.63 -5..401 -14.10 -0.81 -2.0001 0.50 12.0001 0.0670 0.99 p-Value 0.37 0.0001 0.99 11.0001 0.41 2.28 0.78 -2.0001 0.43 51.63 -5.36 -1.26 -28. 50 .0069 0.70 3.10 -0.068 0. 4.Vol.93 -8.85 -7.02 75.0001 0.0001 0.90 17. Changes of Stock Prices Regressed on Changes of Interest Rate (Eq-3) Method One-way Random Effect Two-way Random Effect Country Australia* Bangladesh* Canada* Chile* Colombia* Germany* Italy* Jamaica* Japan* Malaysia Mexico* Philippine S.407 R2 m-Value m-Prob.33 0.54 12.29 -2.70 -10.32 98. Table 6.81 0.0001 0.0001 0.54 0.0001 0.0001 0.20 0.49 142.14 -7.15 102.45 74. Country wise Stock Prices Regressed on Interest Rate (Eq-2) OLS 96.20 87.26 0.95 244.0001 0.33 0.687 0.51 1. 3 International Journal of Business and Management Table 5.55 7.53 -10.23 0. No.75 -0. Africa* Spain* Venezuela* Model Constant Interest Rate Constant Interest Rate Model Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Coefficient 1.32 96.38 76.07 -14.0241 0.0001 0.64 -10.

037 0.94 0.024 0.009 * Alternative is acceptable at 95% confidence level.022 0.74 0.497 0.38 -0.023 0.203 March.03 0.16 1.005 0.90 -0.021 0.71 -0.00 1.62 -0.032 0.10 1.77 0.10 0.44 3.51 2.27 0.07 0.350 0.005 0.054 0.74 -1. 51 .34 -0.21 -0.14 0.0002 0.013 0.040 0.85 0.61 -0.64 1.369 0.43 -2.133 0.05 0.07 3.43 -0. 2009 R2 0.00 -0.016 0.003 0.53 -0.53 -3.32 -0.275 0.International Journal of Business and Management Table 7.73 -2.36 1.03 1.27 -0.008 0.047 0.24 2.08 2.01 -2.169 0.02 2.054 0.94 -0.032 0.060 0.64 -0.47 -0. Country wise Changes of Stock Prices Regressed on Changes of Interest Rate (Eq-3) Country Australia Bangladesh* Canada Chile Colombia* Germany Italy* Jamaica Japan* Malaysia* Mexico Philippine S.025 0.27 2.001 0.10 t-Value 1.238 0. Africa* Spain Venezuela Model Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate Constant Interest Rate OLS 0.57 0.48 0.546 0.156 0.68 -2.525 0.012 0.002 0.94 -2.90 2.021 0.030 0.22 -1.132 0.003 0.91 0.94 3.51 -1.49 -0.054 0.363 0.25 0.001 0.19 -1.002 0.441 0.465 0.18 3.28 p-Value 0.07 0.60 0.

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