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An Empirical Study of the Relationship between Money Market Interest Rates and Stock Market Performance: Evidence from Zimbabwe (2009-2013)

Author

Listed:
  • Trust Kganyago

    (Department of Finance, National University of Science and Technology, PO Box AC 939, Bulawayo, Zimbabwe)

  • Victor Gumbo

    (Department of Finance, National University of Science and Technology, PO Box AC 939, Bulawayo, Zimbabwe)

Abstract

The research examines the long run relationship between money market interest rates and stock market returns in Zimbabwe from April 2009 to December 2013. The estimation model controls for money supply growth rate, inflation, volume of manufacturing index, crude oil price and political stability. All the variables were tested for unit root using augmented Dickey-Fuller test before Johansen cointegration tests. Based on vector error correlation Granger causality tests, findings show evidence of strong and statistically significant inverse causal relationship between money market interest and stock market returns. Findings also show existence of short run causality that runs from stock market returns to money market interest rates. This is believed to be caused by the passive nature of money market in Zimbabwe and non-functionality of Reserve Bank of Zimbabwe in controlling interest rates through monetary policy. There is therefore need to implement robust and pragmatic macroeconomic policies like the repo market to reactivate the money market.

Suggested Citation

  • Trust Kganyago & Victor Gumbo, 2015. "An Empirical Study of the Relationship between Money Market Interest Rates and Stock Market Performance: Evidence from Zimbabwe (2009-2013)," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 638-646.
    • Handle: RePEc:eco:journ1:2015-03-02
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    References listed on IDEAS

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    Cited by:

    1. Dhruv Rawat & Sujay Patni & Ram Mehta, 2021. "Stock prices and Macroeconomic indicators: Investigating a correlation in Indian context," Papers 2112.08071, arXiv.org, revised Feb 2022.
    2. Donald A. Otieno & Rose W. Ngugi & Nelson H. W. Wawire, 2017. "Effects of Interest Rate on Stock Market Returns in Kenya," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(8), pages 40-50, August.
    3. Peter Arhenful & Augustine Kwadwo Yeboah & Kofi Sarfo Adjei, 2021. "Effect of Interest Rate on Stock Prices in Ghana," Journal of Social and Development Sciences, AMH International, vol. 12(1), pages 1-7.
    4. Christian A. Conrad, 2021. "The Effects of Money Supply and Interest Rates on Stock Prices, Evidence from Two Behavioral Experiments," Applied Economics and Finance, Redfame publishing, vol. 8(2), pages 33-41, March.

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    More about this item

    Keywords

    Interest Rates; Stock Market; Ordinary Least Regression;
    All these keywords.

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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