IDEAS home Printed from https://ideas.repec.org/a/nrb/journl/v29y2017i2p15.html
   My bibliography  Save this article

Stock Index, Interest Rate and Gold Price of Nepal: Cointegration and Causality Analysis

Author

Listed:
  • Hom Nath Gaire

    (Confederation of Nepalese Industries (CNI), Kathmandu)

Abstract

This study examines cointegration and causality between the NEPSE index vis-Ã -vis short term interest rates and gold prices in Nepal. Main objective of this study is to identify the long run equilibrium relationship as well as cause and effect relationship between the variables under consideration. Monthly time series data cover the period starting from January 2006 to December 2016, which were sourced from Nepal Stock Exchange (NEPSE), Nepal Rastra Bank (NRB) and Nepal Gold and Silver Dealers Association (NEGOSIDA). The results of the unit root (ADF) tests and Cointegration (Johansen) tests confirm that there is long-run equilibrium relationship between the NEPSE index, short term interest rates and gold prices in Nepal. In the meantime, Granger Causality test reveals that there is no causality between the gold price and NEPSE index. However, it is confirmed that there is unilateral causal relationship between the NEPSE index and short term interest rate which moves from interest rate to NEPSE index. From the test results it can be concluded that the short-term interest rates are the better predictor for NEPSE index and bullion (commodity) market is yet to be developed as substitute of the Stock Market

Suggested Citation

  • Hom Nath Gaire, 2017. "Stock Index, Interest Rate and Gold Price of Nepal: Cointegration and Causality Analysis," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 29(2), pages 15-30, October.
  • Handle: RePEc:nrb:journl:v:29:y:2017:i:2:p:15
    as

    Download full text from publisher

    File URL: https://www.nrb.org.np/contents/uploads/2019/12/2.NEPSEIndex20180206.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Prakash Kumar Shrestha Ph.D. & Biggyan Raj Subedi, 2014. "Determinants of Stock Market Performance in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 26(2), pages 25-40, October.
    2. repec:icf:icfjaf:v:19:y:2013:i:1:p:99-109 is not listed on IDEAS
    3. Gary Tian & Shiguang Ma, 2010. "The relationship between stock returns and the foreign exchange rate: the ARDL approach," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 15(4), pages 490-508.
    4. Prakash Shrestha Ph.D. & Biggyan Raj Subedi, 2014. "Empirical Examination of Determinants of Stock Index in Nepal," NRB Working Paper 24/2014, Nepal Rastra Bank, Research Department.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tian, Maoxi & El Khoury, Rim & Alshater, Muneer M., 2023. "The nonlinear and negative tail dependence and risk spillovers between foreign exchange and stock markets in emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    2. Siew-Pong Cheah & Thian-Hee Yiew & Cheong-Fatt Ng, 2017. "A nonlinear ARDL analysis on the relation between stock price and exchange rate in Malaysia," Economics Bulletin, AccessEcon, vol. 37(1), pages 336-346.
    3. Charles Kwofie & Richard Kwame Ansah, 2018. "A Study of the Effect of Inflation and Exchange Rate on Stock Market Returns in Ghana," International Journal of Mathematics and Mathematical Sciences, Hindawi, vol. 2018, pages 1-8, March.
    4. Karunanayake, Indika, 2014. "Exchange Rate Influences On Stock Market Returns And Volatility Dynamics: Empirical Evidence From The Australian Stock Market," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 10(1-2), January.
    5. Amarila, Mark Reniel M. & Abueg, Luisito C., 2022. "Do Philippine Stocks Catch Coronavirus? Some Econometric Check-up on Pandemic Data, 2021-2022," Journal of Economics, Management & Agricultural Development, Journal of Economics, Management & Agricultural Development (JEMAD), vol. 8(1), December.
    6. Grabowski, Wojciech & Welfe, Aleksander, 2020. "The Tobit cointegrated vector autoregressive model: An application to the currency market," Economic Modelling, Elsevier, vol. 89(C), pages 88-100.
    7. Richard Kofi Asravor & Prince Dieu‐Donne Fonu, 2021. "Dynamic relation between macroeconomic variable, stock market returns and stock market development in Ghana," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2637-2646, April.
    8. Ezu, Gideon Kasie PhD & Ukoh, Josephine.E, PhD, 2021. "Monetary Policy Instruments and Performance of Nigeria Capital Market," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(11), pages 720-726, November.
    9. Shaobo Long & Mengxue Zhang & Keaobo Li & Shuyu Wu, 2021. "Do the RMB exchange rate and global commodity prices have asymmetric or symmetric effects on China’s stock prices?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-21, December.
    10. Salah A. Nusair & Jamal A. Al-Khasawneh, 2022. "On the relationship between Asian exchange rates and stock prices: a nonlinear analysis," Economic Change and Restructuring, Springer, vol. 55(1), pages 361-400, February.
    11. Zuzana Rowland & George Lazaroiu & Ivana Podhorská, 2020. "Use of Neural Networks to Accommodate Seasonal Fluctuations When Equalizing Time Series for the CZK/RMB Exchange Rate," Risks, MDPI, vol. 9(1), pages 1-21, December.
    12. Sushil Kumar Rai & Akhilesh Kumar Sharma, 2023. "Forecasting Exchange Rate Volatility In India Under Univariate And Multivariate Analysis," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(1), pages 175-190, March.
    13. Aneel Bhusal & Madhu Sudan Gautam, 2022. "Impact of Gold Prices on Stock Exchange: An Empirical Case Study of Nepal," Papers 2202.00007, arXiv.org.
    14. Muhammed Benli & Sedat Durmuskaya & Gokberk Bayramoglu, 2019. "Asymmetric exchange rate pass-through and sectoral stock price indices: Evidence from Turkey," International Journal of Business and Management, International Institute of Social and Economic Sciences, vol. 7(1), pages 25-47, May.
    15. Samih Antoine Azar, 2013. "US Stocks and the US Dollar," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(4), pages 91-106, October.
    16. Hande Aksoz Yilmaz & Fatih Guzel, 2021. "How Do the Exchange Rates Affect the Sector Indices? A Dynamic Panel Data Analysis for Borsa Istanbul," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 71(71-2), pages 411-434, December.
    17. Mohsen Bahmani-Oskooee & Sujata Saha, 2018. "On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 112-137, January.
    18. Ahmed, Walid M.A., 2020. "Stock market reactions to domestic sentiment: Panel CS-ARDL evidence," Research in International Business and Finance, Elsevier, vol. 54(C).
    19. Li, Wei & Lu, Xinsheng & Ren, Yongping & Zhou, Ying, 2018. "Dynamic relationship between RMB exchange rate index and stock market liquidity: A new perspective based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 508(C), pages 726-739.
    20. Rabia Luqman & Rehana Kouser, 2018. "Asymmetrical Linkages between Foreign Exchange and Stock Markets: Empirical Evidence through Linear and Non-Linear ARDL," JRFM, MDPI, vol. 11(3), pages 1-13, August.

    More about this item

    Keywords

    Granger Causality; Cointegration; Stock Index and Interest Rate;
    All these keywords.

    JEL classification:

    • 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
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nrb:journl:v:29:y:2017:i:2:p:15. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Publication Division NRB (email available below). General contact details of provider: https://edirc.repec.org/data/nrbgvnp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.