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

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Listed:
  • Cifter, Atilla
  • Ozun, Alper

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.

Suggested Citation

  • Cifter, Atilla & Ozun, Alper, 2007. "Estimating the Effects of Interest Rates on Share Prices Using Multi-scale Causality Test in Emerging Markets: Evidence from Turkey," MPRA Paper 2485, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2485
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    File URL: https://mpra.ub.uni-muenchen.de/2485/1/MPRA_paper_2485.pdf
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    References listed on IDEAS

    as
    1. Choi, Jongmoo Jay & Elyasiani, Elyas & Kopecky, Kenneth J., 1992. "The sensitivity of bank stock returns to market, interest and exchange rate risks," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 983-1004, September.
    2. Abdullah Almasri & Ghazi Shukur, 2003. "An illustration of the causality relation between government spending and revenue using wavelet analysis on Finnish data," Journal of Applied Statistics, Taylor & Francis Journals, vol. 30(5), pages 571-584.
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    Cited by:

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    2. Zatul Badarudin & Ahmed Khalid & Mohamed Ariff, 2009. "Money supply behaviour in emerging economies: a comparative analysis," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 14(4), pages 331-350.

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    More about this item

    Keywords

    Interest rates; Emerging markets; Wavelets; Stock returns; Multi-scale Granger causality;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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