Stock returns and interest rate differential in high and low interest rate environments

Abstract

In this study, we contribute to the literature in three ways. First, we test whether the response of stock returns to interest rate differential contrasts between high and low interest rate environments. Second, we further test whether positive and negative interest rate differentials impact differently on stock returns. For completeness, we examine the role of negative interest rate policy in the nexus by testing whether the response of stock returns to interest rate differential varies between negative and positive low interest rate environments. The third objective becomes necessary as negative interest rate may not

Impact of Interest Rate on Stock Market in Nepal

“…This shows that how the institutional climate has evolved from one characterized by managed credit rationing to a more competitive environment. Salisu and Sikiru (2021) explored the impact of interest rate differences on stock returns in both low-and high-rate conditions. The study indicated that, in negative interest rate environments, interest rate differentials have a more positive impact on stock returns in the short term than in positive interest rate environments.…”