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Returns And Interest Rate: A Nonlinear Relationship In The Bogota Stock Market

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  • Luis Eduardo Arango
  • Andrés González
  • Carlos Esteban Posada

Abstract

This work presents some evidence of the nonlinear and inverse relationship between the share prices on the Bogotá stock market and the interest rate as measured by the interbank loan interest rate, which is to some extent affected by monetary policy. The model captures the stylised fact on this market of high dependence of returns in short periods of time. These findings do not support any efficiency on the main stock market in Colombia. Evidence of a non constant equity premium is also found. The work uses daily data from January 1994 up to February 2000.

Suggested Citation

  • Luis Eduardo Arango & Andrés González & Carlos Esteban Posada, 2001. "Returns And Interest Rate: A Nonlinear Relationship In The Bogota Stock Market," Borradores de Economia 3468, Banco de la Republica.
    • Handle: RePEc:col:000094:003468
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    Cited by:

    1. López Gaviria, José Ignacio, 2019. "Predictibilidad del mercado accionario colombiano," Revista Lecturas de Economía, Universidad de Antioquia, CIE, issue 91, pages 117-150, July.
    2. Claudio Bonilla & Rafael Romero-Meza & Melvin Hinich, 2006. "Episodic nonlinearity in Latin American stock market indices," Applied Economics Letters, Taylor & Francis Journals, vol. 13(3), pages 195-199.
    3. Alam, Md. Mahmudul & Uddi, Gazi Salah, 2019. "Relationship between Interest Rate and Stock Price: Empirical Evidence from Developed and Developing Countries," SocArXiv 5fket, Center for Open Science.
    4. Francisco Jareno, 2008. "Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-factor model with factors of the Fama and French three-factor model," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3159-3171.
    5. Andrew Phiri, 2018. "Has the South African Reserve Bank responded to equity returns since the sub-prime crisis? An asymmetric convergence approach," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 10(3), pages 205-225.
    6. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2017. "Interest rate dynamic effect on stock returns and central bank transparency: Evidence from emerging markets," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 951-962.
    7. BENDOB, Ali & Benahmed-Daho, Rachida, 2017. "Pourrions-nous utiliser l'Euribor comme taux de rendement sans risque dans la région Arabe ? [Could we use the Euribor as risk-free rate return in Arabic region?]," MPRA Paper 81405, University Library of Munich, Germany, revised Jun 2017.
    8. María de la O & Francisco JAREÑO, Francisco & SKINNER, Frank S., 2017. "The Financial Crisis Impact: An Industry Level Analysis Of The Us Stock Market González," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 17(2), pages 61-74.
    9. José Ignacio López-Gaviria, 2019. "Colombia’s stock market predictability," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 91, pages 117-150, Julio - D.
    10. Pooja Joshi & Arun Kumar Giri, 2015. "Fiscal Deficits and Stock Prices in India: Empirical Evidence," IJFS, MDPI, vol. 3(3), pages 1-18, August.
    11. Fredj Jawadi & Mohamed Hedi Arouri & Duc Khuong Nguyen, 2010. "Global financial crisis, liquidity pressure in stock markets and efficiency of central bank interventions," Applied Financial Economics, Taylor & Francis Journals, vol. 20(8), pages 669-680.
    12. Phiri, Andrew, 2017. "Has the South African Reserve Bank responded to equity prices since the sub-prime crisis? An asymmetric convergence approach," MPRA Paper 76542, University Library of Munich, Germany.
    13. Pallegedara, Asankha, 2012. "Dynamic relationships between stock market performance and short term interest rate Empirical evidence from Sri Lanka," MPRA Paper 40773, University Library of Munich, Germany.
    14. María Clara Aristizábal Restrepo, 2006. "Evaluación asimétrica de una red neuronal artificial:Aplicación al caso de la inflación en Colombia," Borradores de Economia 377, Banco de la Republica de Colombia.
    15. González, María de la O & Jareño, Francisco, 2019. "Testing extensions of Fama & French models: A quantile regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 188-204.
    16. Khrawish, Husni Ali & Siam, Walid Zakaria & Jaradat, Mohammad, 2010. "The relationships between stock market capitalization rate and interest rate: Evidence from Jordan," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 2(2), pages 1-7, July.
    17. David Mauricio Rivera Palacio, 2009. "Modelacion del efecto del día de la semana para los índices accionarios de Colombia mediante un modelo STAR GARCH," Revista de Economía del Rosario, Universidad del Rosario, May.
    18. Afsin Sahin, 2019. "Loom of Symmetric Pass-Through," Economies, MDPI, vol. 7(1), pages 1-25, February.
    19. Alam, Md. Mahmudul & Uddin, Gazi Salah, 2019. "The Impacts of Interest Rate on Stock Market: Empirical Evidence from Dhaka Stock Exchange," OSF Preprints r3jpx, Center for Open Science.
    20. Rafael Romero-Meza & Claudio Bonilla & Melvin Hinich, 2007. "Nonlinear event detection in the Chilean stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 14(13), pages 987-991.

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    More about this item

    Keywords

    nonlinearities;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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