scholarly journals Stock And Bond Price Dynamics-Evidence From An Emerging Economy

2011 ◽  
Vol 10 (9) ◽  
pp. 93
Author(s):  
M. Venkateshwarlu ◽  
T. Ramesh Babu
Keyword(s):  
Interest Rates ◽  
Stock Returns ◽  
Term Structure ◽  
Stock Prices ◽  
Empirical Studies ◽  
Bond Markets ◽  
Bond Price ◽  
Short Term ◽  
Bond Prices

The motivation for this study is that real stock prices are observed to overreact to changes in interest rates. The real stock prices drop when long-term interest rates rise. It has been observed that bonds and stock prices are typically studied in isolation. The present paper attempts to analyze the dynamic linkages between stock and bond prices in India. One of the important contributions of this study is that in India, very little/almost no work has been done to understand the dynamics of the stock and bond prices after the recent recession. The present study examined the bivariate causal relationship between stock prices and bond prices. In the long term; i.e., periods from 2004 to 2007 and 2008 to 2009, there is no causality from stock market to bond market and vice versa. However, it is found that the bond and stock prices had a bivariate causality in the year 2009 and univariate causality in 2010. The results are interesting and support the view that excess volatility causes granger between the stock and bond markets. This can be inferred as a result of recession investors moving to bond markets and after the signs of recovery the investors might be returning to the stock markets. It is also evident that short-term interest rates have power to forecast short-term stock returns and risk premiums on observation of co-movement between stock and bond prices. This is reiterated by many empirical studies that have shown that the term structure of nominal interest rates contains information potentially useful for the conduct of monetary policy.

scholarly journals CANDIDE et la monnaie

2009 ◽  
Vol 52 (1) ◽  
pp. 75-103
Author(s):  
Jean-Pierre Aubry ◽  
Pierre Duguay
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Structural Equations ◽  
Reduced Form ◽  
Real Sector ◽  
Short Term ◽  
The Real ◽  
Structure Equations

Abstract In this paper we deal with the financial sector of CANDIDE 1.1. We are concerned with the determination of the short-term interest rate, the term structure equations, and the channels through which monetary policy influences the real sector. The short-term rate is determined by a straightforward application of Keynesian liquidity preference theory. A serious problem arises from the directly estimated reduced form equation, which implies that the demand for high powered money, but not the demand for actual deposits, is a stable function of income and interest rates. The structural equations imply the opposite. In the term structure equations, allowance is made for the smaller variance of the long-term rates, but insufficient explanation is given for their sharper upward trend. This leads to an overstatement of the significance of the U.S. long-term rate that must perform the explanatory role. Moreover a strong structural hierarchy, by which the long Canada rate wags the industrial rate, is imposed without prior testing. In CANDIDE two channels of monetary influence are recognized: the costs of capital and the availability of credit. They affect the business fixed investment and housing sectors. The potential of the personal consumption sector is not recognized, the wealth and real balance effects are bypassed, the credit availability proxy is incorrect, the interest rate used in the real sector is nominal rather than real, and the specification of the housing sector is dubious.

scholarly journals Taux d’intérêt à long terme, martingales, et marchés efficients

2009 ◽  
Vol 55 (3) ◽  
pp. 360-374
Author(s):  
Charles Freedman
Keyword(s):  
Interest Rates ◽  
Empirical Work ◽  
Bond Market ◽  
Bond Markets ◽  
Bond Prices ◽  
Martingale Process ◽  
The Relationship ◽  
Special Case

This note discusses some aspects of the relationship between the hypothesis that long-term bond rates follow a martingale process and the hypothesis that the bond market is efficient. It begins with some mathematics of bond prices and interest rates. It then shows that, except in one special case, the hypothesis that bond rates follow a martingale and that bond markets are efficient are theoretically inconsistent. Some empirical work is then adduced that shows that neither hypothesis is supported by the data. It concludes with some brief comments on the literature relating to this subject and some suggestions for further research.

Stock Market and Macroeconomic Behavior

2016 ◽  
Vol 5 (2) ◽  
pp. 12-30 ◽  
Author(s):  
Nabila Nisha
Keyword(s):  
Stock Market ◽  
Interest Rates ◽  
Stock Returns ◽  
Stock Prices ◽  
Empirical Studies ◽  
Macroeconomic Factors ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Highly Sensitive

An impressive body of research has documented that movement in stock prices are highly sensitive to changes in the macroeconomic variables of an economy. Past empirical studies have examined this relationship across different stock markets by either outlining the influence of only domestic factors or a few global variables. A recent phenomenon has been the shift of academic interest to the emerging economies to investigate this presumed linkage by focusing more on global factors due to the trend of globalization. The aim of this paper is therefore to examine the influence of only global macroeconomic factors upon stock returns in the emerging stock market of Pakistan. By employing Vector Error Correction Model (VECM), findings indicate that significant influence of the global macroeconomic factors of the international interest rates and the world price index is observed, which implies a gradual integration of KSE towards the global financial markets. Limitations and implications for practice and research are also discussed.

scholarly journals The Equity Curve and Its Relation to Future Stock Returns

2020 ◽  
Vol 13 (2) ◽  
pp. 19
Author(s):  
Olaf Stotz
Keyword(s):  
Stock Returns ◽  
Term Structure ◽  
Investment Strategy ◽  
Absolute Difference ◽  
Option Prices ◽  
Positive Slope ◽  
Short Term ◽  
Theoretical Predictions ◽  
Expected Stock Returns

Using option prices, a new method for estimating the term structure of expected stock returns (equity curve) is proposed. We analyse how the equity curve relates to future stock returns and obtain three main results. First, a higher level of the equity curve is associated with higher future stock returns. Second, a positive slope is followed by future realized returns which are lower in the short term (1 month) than in the long term (1 quarter or 1 year). Third, a steeper slope (either positive or negative) is associated with a larger absolute difference between short-term and long-term returns. Therefore, the equity curve is consistent with theoretical predictions. We also analyse an investment strategy that uses the slope of the equity curve to determine the allocation to stocks. This strategy earns an outperformance of up to 200 basis points per annum.

scholarly journals The Impact of Exchange Rates and Interest Rates on Bank Stock Returns: Evidence from U.S. Banks

2016 ◽  
Vol 11 (1) ◽  
pp. 124-139 ◽  
Author(s):  
Verma Priti
Keyword(s):  
Exchange Rates ◽  
Interest Rates ◽  
Stock Returns ◽  
Short Term ◽  
Volatility Spillovers ◽  
Hedging Strategies ◽  
Bank Stock ◽  
The Impact ◽  
Bank Portfolios

AbstractThis paper examines the mean, volatility spillovers and response asymmetries between short-term and long-term interest rates, exchange rates and portfolios of money center, large and medium-sized banks in the U.S. I use the multivariate version of Nelson’s (1991) Exponential Generalized Autoregressive Conditionally Heteroscedastic (EGARCH) model. Results indicate mean and volatility spillovers from short-term interest rates and exchange rates and long-term interest rates and exchange rates to three bank portfolios. Results also show response asymmetries from short-term interest rates and exchange rates and long-term interest rates and exchange rates to all the three bank portfolios. These findings have important implications for bankers in terms of devising different hedging strategies against interest rates and exchange rate risks.

scholarly journals The Issues and Implications About the Volatility of the Stock and the Bond Prices and Their Returns and the Volatility of Interest Rates and Inflation - Which Are Being Researched in Finance and Macro-Monetary Economics Literature: A Survey

2018 ◽  
Vol 5 (2) ◽  
pp. 125 ◽  
Author(s):  
Muthucattu Thomas Paul
Keyword(s):  
Interest Rates ◽  
Stock Returns ◽  
Futures Markets ◽  
Relevant Literature ◽  
Aggregate Demand ◽  
Monetary Economics ◽  
Short Term ◽  
Expected Return ◽  
The Cost

Volatility of returns of the financial assets, and the volatility of the inflation and aggregate demand, are important issues in the Financial markets, and the macro- monetary economics. In this article, the volatility in the stock and bond markets are surveyed and discussed in detail. Our view is that the higher volatility in the long-term rates than in the short-term rates, may be due to the higher leverage effect in the long-term markets and rates than in the short -term rates. In the previous century, last fifty years, the average stock returns were much higher and the expected return or the cost of capital was lower. The conditional volatility models and the volatility spill over between the spot and futures markets and their implications are deeply explored in this article along with the price discovery between spot and futures markets and the conditions for the efficiency in these markets. In our section dealing with Macro- monetary economics, the effect of the variability of inflation on the demand for money function, on the nominal rates of interest, and on the slope of the aggregate supply curve, are brought into sharp focus and is being discussed through the relevant literature survey.

The Effect of Taxes on Corporate Debt Maturity Decisions: An Analysis of Public and Private Bond Offerings

1999 ◽  
Vol 21 (2) ◽  
pp. 1-16 ◽  
Author(s):  
Kaye J. Newberry ◽  
Garth F. Novack
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Debt Maturity ◽  
Early Years ◽  
Corporate Bond ◽  
Corporate Debt ◽  
Short Term ◽  
Public And Private ◽  
Theoretical Predictions

This paper tests theoretical predictions of a relation between taxes and corporate debt maturity decisions using bond offerings (public and private) during 1988–1995. Consistent with predictions of a tax clientele effect, a positive relation between firms' marginal tax rates and the maturity term of their corporate bond offerings is found. Also consistent with tax predictions of a term structure effect, the results indicate that firms issue corporate bonds with longer maturities in periods characterized by large term premiums (for long- vs. short-term interest rates). In periods with large term premiums, long-term bonds accelerate interest deductions into the early years of the bond obligation (with the present value of pre-tax interest payments being no more for the long-term bond than for successive short-term bond issues). These findings extend prior research on determinants of financing choices by providing some of the first empirical evidence that taxes are related to corporate debt maturity decisions.

Short Term and Long Term Herding Prospects: Evidence from Pakistan Stock Exchange

2021 ◽  
pp. 119-144
Author(s):  
Shaista Jabeen ◽  
Sayyid Salman Rizavi
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Prices ◽  
Stock Exchange ◽  
Short Term ◽  
Fundamental Information ◽  
New Information ◽  
Herd Behaviour ◽  
Price Instability

The present research intends to examine the herd behaviour of investors in the Pakistan Stock Exchange (PSX). Herd behaviour in stock market is sometimes based on fundamental information, which causes quick price adjustments to new information and leads to efficient markets. Still, sometimes it is not dependent on fundamental information and results in price instability. Herding can be a short term phenomenon, but sometimes a longer time span can provide favourable outcomes for the occurrence of herd behaviour. Considering these diverse views, intraday, daily, weekly, and monthly stock prices of 528 companies listed in the PSX have been used to calculate stock returns. Market-wide herd measure, i.e. CSAD, has been used to compute the herd behaviour. Data has been investigated for autocorrelation, heteroscedasticity, and stationarity issues. Findings revealed that herding did not exist in PSX, but some sectors showed this behaviour. Herd behaviour was more likely to exist at a daily level. The tendency of occurrence of the herding phenomenon gradually decreases at intraday and weekly levels. However, herding cannot be taken as a long term phenomenon as just a single sector was evidenced about its existence at the monthly level. Herding is an inherent phenomenon that is very difficult to eliminate from the stock market completely. However, knowledge and information sharing can guide investors to improve this behaviour Keywords: Herd Behaviour, Behavioural Finance, Return Dispersions, Pakistan Stock Exchange, CSAD

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