Dynamic Relationship between Interest Rate and Tourism Stock Performance: Empirical Evidence from Egyptian Exchange

Abstract

Tourism industry plays a significant role in the economic development in Egypt. Identifying the effects of macroeconomic variables on the performance of tourism companies is important and of great interest to decision-makers and investors. The main purpose of this study is to investigate the dynamic relation between interest rate and the stock performance of tourism companies, as measured by the stock price, in the Egyptian Exchange (EGX). The linear Granger causality test, Cointegration analysis and Error Correction Model (ECM) are employed to establish the relationship between the tested variables. Findings show that a unidirectional causal relationship exists between the variables evaluated from interest rate to tourism stock price. A positive longrun cointegration between the tested variables is observed and a rise in interest rate by 1% triggers stock price rise of 26.8%. The coefficient of error correction indicates that 0.03% of the deviation of stock price is adjusted in the short-run. The study ends with implications for decision-makers, financial executives in tourism companies and researchers in the field.