Stock prices, exchange rate and interest rate: evidence beyond symmetry

Abstract

Purpose This paper aims to examine the dynamic interactions between monetary and financial variables in the Indian context. Design/methodology/approach In this paper, the authors have applied a recently developed asymmetric autoregressive distributed lag (ARDL) model by Shin et al. (2014), for detecting nonlinearities focusing on the long-run and short-run asymmetries among economic variables. Findings The results point toward the presence of asymmetric reaction of stock prices to changes in interest rate and exchange rate in full sample, as well as in pre-crisis. However, no asymmetry was found in the post-crisis period. The results further suggest that tight monetary policies appear to retard the stock prices, more than easy monetary policies that stimulate them. Practical implications The findings of the study can be helpful in understanding the policy transmission mechanism through asset price channel. Originality/value To the best of the authors’ knowledge, this is the first study that examines the interactions between monetary and financial variables in the Indian context in an asymmetric framework. The findings of this study are quite interesting and are different from several existing studies in the literature.

Stock return-inflation nexus; revisited evidence based on nonlinear ARDL

“…However, only a handful studies have been found in the literature to give prominence to this asymmetrical relationship between inflation and stock returns (e.g. Ajaz, Nain, Kamaiah, & Sharma, 2017;Chuliá, Martens, & van Dijk, 2010;Zare & Azali, 2015). for an excellent review on such studies see Madadpour and Asgari (2019) The present study, therefore, seeks to plug the gaps in the inflation-stock returns nexus by investigating this possible asymmetric relationship.…”

Analisis Dinamis Hubungan Antara Harga Saham dan Variabel Makroekonomi

“…Hasil kesimpulan dengan metode ARDL neraca perdagangan, nilai tukar dan suku bunga berpengaruh negatif terhadap harga saham, sedangkan inflasi dan indeks produksi industri berpengaruh positif terhadap harga saham. Ajaz et al (2017) menunjukkan adanya reaksi asimetris harga saham terhadap perubahan suku bunga dan nilai tukar secara full sample, serta sebelum krisis. Namun, tidak ditemukan asimetri pada periode pasca krisis.…”

The effect of the global financial crisis on the asymmetric relationship between exchange rate and stock prices

“…The high production cost lowers profit and hence decreases stock prices. Due to this mechanism, the share price could move in either direction (Ajaz, Nain, Kamaiah, & Sharma, 2017).…”