Estimating the Effects of Interest Rates on Share Prices Using Multi-scale Causality Test in Emerging Markets: Evidence from Turkey

Cifter, Atilla and Ozun, Alper (2007): Estimating the Effects of Interest Rates on Share Prices Using Multi-scale Causality Test in Emerging Markets: Evidence from Turkey.

Abstract

This paper examines the impacts of changes in interest rates on stock returns by using wavelet analysis with Granger causality test. Financial time series in non-coherent markets should be analyzed by advanced methods capturing complexity of the markets and non-linearities in stock returns. As a semi-parametric method, wavelets analysis might be superior to detect the chaotic patterns in the non-coherent markets. By using daily closing values of the ISE 100 Index and compounded interest rates, it is proven that and starting with 9 days time-scale effect interest rate is granger cause of ISE 100 index and the effects of interest rates on stock return increases with higher time-scales. This evidence shows that bond market has significant long-term effect on stock market for Turkey and traders should consider long-term money markets changes as well as short-term changes.

• Item Type: MPRA Paper
• Institution: Marmara University
• Language: English
• Keywords: Interest rates; Emerging markets; Wavelets; Stock returns; Multi-scale Granger causality
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C45 - Neural Networks and Related Topics; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General

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