What Do Interest Rates Reveal About the Stock Market? A Noisy Rational Expectations Model of Stock and Bond Markets

2021 ◽  
Author(s):  
Matthijs Breugem ◽  
Adrian Buss ◽  
Joel Peress
Keyword(s):  
Stock Market ◽  
Interest Rates ◽  
Rational Expectations ◽  
Bond Markets ◽  
Noisy Rational Expectations

scholarly journals A Theory of Foreign Exchange Interventions

2021 ◽  
Author(s):  
Sebastián Fanelli ◽  
Ludwig Straub
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Open Economy ◽  
Small Open Economy ◽  
Bond Markets ◽  
Pecuniary Externality ◽  
Optimal Intervention ◽  
The Exchange Rate ◽  
Intervention Policy

Abstract We study a real small open economy with two key ingredients (1) partial segmentation of home and foreign bond markets and (2) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (1) the optimal policy leans against the wind, stabilizing the exchange rate; (2) it involves smooth spreads but allows exchange rates to jump; (3) it partly relies on “forward guidance,” with non-zero interventions even after the shock has subsided; (4) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates.

scholarly journals Asymmetric Reactions of China’s Stock Market to Short-Term Interest Rates

2016 ◽  
Vol 8 (5) ◽  
pp. 260 ◽  
Author(s):  
Fang Fang ◽  
Weijia Dong ◽  
Xin Lv
Keyword(s):  
Stock Market ◽  
Interest Rates ◽  
Stock Returns ◽  
Regime Switching ◽  
Developed Countries ◽  
Short Term ◽  
Bear Market ◽  
Bull Market ◽  
Negative Effect ◽  
Markov Regime Switching Model

This paper investigates how China’s stock market reacts to short-term interest rates, as represented by the Shanghai Interbank Offered Rate (Shibor). We adopt the Markov Regime Switching model to divide China’s stock market into Medium, Bull and Bear market; and then examine how Shibor influences market returns and risk in different market regimes. We find that short-term interest rates have a significant negative effect on stock returns in Medium and Bull market, but could not affect stock returns in Bear market. In addition, different maturities of Shibor have different effects on stock returns. Furthermore, we find that the short-term interest rates have a negative effect on market risk in Bull market, but a positive effect in Bear market. Our findings show that China’s market is quite peculiar and distinctive from the U.S. market or other developed countries’ markets in many ways.

Monetary Transmission in the Term Structure of Interest Rates in Spain (1995-2003)

2021 ◽  
Vol 26 (1) ◽  
pp. 279-292
Author(s):  
María A. Prats ◽  
Gloria M. Soto
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Rational Expectations ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Var Model ◽  
Expectations Hypothesis ◽  
Weak Evidence ◽  
One Year ◽  
The One

The aim of this paper is to investigate whether the effectiveness of the transmission mechanism of monetary  policy in Spain has changed since EMU establishment. The analysis is based on the fulfillment of the Expectations Hypothesis under rational expectations and the methodology is implemented through a  cointegrated  bivariate VAR model. The results reveal the existence of  monetary transmission in the term structure in the  period prior to EMU, even though the evidence is stronger up to the one-year rate. From 1999, the results are   only consistent with a weak evidence of monetary transmission.

Corporate Bond Markets

2019 ◽  
pp. 113-130
Author(s):  
Kelly E. Carter
Keyword(s):  
Interest Rates ◽  
Credit Ratings ◽  
Corporate Bonds ◽  
Corporate Bond ◽  
Bond Markets ◽  
Bond Prices ◽  
Wall Street ◽  
Yield Curves ◽  
Bond Portfolios ◽  
The Impact

This chapter covers the fundamentals of corporate bond markets. It begins by highlighting the size and importance of these markets, followed by a discussion of the major types of corporate bonds and the process of issuing bonds. Next, the chapter provides a discussion of important relationships between a bond’s price and market interest rates, including the key observation that bond prices move opposite market interest rates. The next topic focuses on duration and convexity, which are techniques to estimate the dollar and percent changes in bond prices for a given change in market interest rates, followed by a discussion of bond immunization, which is a technique used to protect the value of bond portfolios from adverse changes in market interest rates. The final topics covered concern yield curves, credit ratings, and the impact of the Dodd-Frank Wall Street Reform Act of 2010 on corporate bond markets.

scholarly journals An Empirical Analysis of Macroeconomic Variability on the Ghanaian Stock Market: A Vector Autoregression Approach

2016 ◽  
Vol 3 (2) ◽  
pp. 49
Author(s):  
Beverly Acquah
Keyword(s):  
Stock Market ◽  
Interest Rates ◽  
Stock Prices ◽  
Economic Activity ◽  
Price Index ◽  
Vector Autoregression ◽  
Negative Relationship ◽  
Commodity Prices ◽  
Commodity Price ◽  
Macroeconomic Indicators

This study investigates the dynamic interrelationships among stock prices and selected macroeconomic indicators namely; economic activity, global commodity price index, inflation and interest rates in Ghana. By employing a Vector Autoregression (VAR) Model, the empirical results reveal that stock prices depreciate with an increase in global commodity prices and interest rates indicating a negative relationship. On the other hand, stock prices appreciate with an increase in inflation and economic activity indicating a positive relationship. Examining stock market variability on the selected macroeconomic variables also showed that inflation and interest rates respond negatively to changes in asset prices while the stock market itself is not found to be a leading indicator for economic activity. The evidence suggests that the listed equities on the GSE are a hedge against inflation in Ghana. Increasing economic activity over time is advantageous for the Ghanaian stock market.

scholarly journals Forecasting Term Structure of Interest Rates in Japan

2019 ◽  
Vol 7 (3) ◽  
pp. 39 ◽  
Author(s):  
Ishii
Keyword(s):  
Financial Crisis ◽  
Interest Rates ◽  
Term Structure ◽  
Bond Markets ◽  
Forecast Horizon ◽  
Forecast Performance ◽  
Crisis Period ◽  
Long Period ◽  
The U.S ◽  
Dns Model

In this paper, we examined and compared the forecast performances of the dynamic Nelson–Siegel (DNS), dynamic Nelson–Siegel–Svensson (DNSS), and arbitrage-free Nelson–Siegel (AFNS) models after the financial crisis period. The best model for the forecast performance is the DNSS model in the middle and long periods. The AFNS is inferior to the DNS model for long-period forecasting. In U.S. bond markets, AFNS is shown to be superior to DNS in the U.S. However, for Japanese data, there is no evidence that the AFNS is superior to the DNS model in the long forecast horizon.

2008 AND ALL THAT: ECONOMICS AND VICTORIAN LITERATURE

2015 ◽  
Vol 43 (1) ◽  
pp. 217-222 ◽  
Author(s):  
Nancy Henry
Keyword(s):  
Stock Market ◽  
Interest Rates ◽  
Victorian Literature ◽  
Literary Studies ◽  
Leveraged Buyouts ◽  
Public Attention ◽  
The Public ◽  
Economic Criticism ◽  
Literature Culture ◽  
Cultural Turn

In their collection of essays,The New Economic Criticism: Studies at the Intersection of Literature and Economics(1999), Mark Osteen and Martha Woodmansee identified and named a movement in economic literary studies and sought to place it alongside a cultural turn in economics. In their introduction, they offer possible reasons for the proliferation of scholarship in literature, culture, and economics. One is that “the critical pendulum has decidedly swung back toward historicist methods” and away from formalist approaches (3); another is that the 1980s thrust “interest rates, stock market speculation, takeovers, leveraged buyouts, and so on, into the public attention as never before since the 1930s” (4). Today, the proverbial pendulum has swung back toward formalism, and it is now surprising to encounter their comparison of the 1980s to the 1930s because we have become so accustomed to claim that comparison to the 1930s for our own post-2008 economy.

PENGARUH PERUBAHAN SUKU BUNGA SBI DAN PERUBAHAN KURS USD/IDR TERHADAP HARGA PASAR SAHAM PT. BANK CENTRAL ASIA (BCA) TBK

2020 ◽  
Vol 1 (2) ◽  
pp. 56-65
Author(s):  
Maswir Mutakhir
Keyword(s):  
Exchange Rate ◽  
Stock Market ◽  
Interest Rates ◽  
Central Asia ◽  
Market Price ◽  
Secondary Data ◽  
Coefficient Of Determination ◽  
Linear Regression Models ◽  
Insignificant Effect ◽  
Independent Variable

This study aims to determine whether changes in SBI interest rates and changes in the USD / IDR exchange rate have an influence on the PT BCA Stock Market Price during the period January 2015-December 2019. The data used are secondary data provided by relevant institutions. The research method uses multiple linear regression models. To test the significance of the effect of the independent variable on the dependent variable partially, the t test is used. The partial test results on changes in the independent variable on changes in the dependent variable note that changes in SBI Interest Rates have a negative and insignificant effect on the Stock Market Price of PT Bank Central Asia Tbk, while The USD / IDR exchange rate has a positive and insignificant effect on the Stock Market Price of PT Bank Central Asia Tbk. The value of the coefficient of determination is 4.2%, which means that the proportion of changes in the PT BCA Stock Market Price which can be explained by variations in changes in SBI interest rates and changes in the exchange rate of USD / IDR is 4.2%, while the remaining 95.8% is explained. by other variables. Penelitian ini bertujuan untuk mengetahui apakah perubahan Suku Bunga SBI dan perubahan Kurs USD/IDR mempunyai pengaruh terhadap Harga Pasar Saham PT BCA selama periode Januari 2015–Desember 2019. Data yang digunakan adalah data sekunder yang disediakan lembaga yang relevan. Metode penelitian  menggunakan model regresi linier berganda. Untuk menguji signifikansi pengaruh variabel independen terhadap variabel dependen secara parsial digunakan uji t.Hasil pengujian secara parsial atas  perubahan variabel independen terhadap perubahan variabel dependen diketahui bahwa perubahan Suku Bunga SBI mempunyai pengaruh negatif dan tidak signifikan terhadap Harga Pasar Saham PT Bank Central Asia Tbk, sedangkan Kurs USD/IDR mempunyai pengaruh positif dan tidak signifikan terhadap Harga Pasar Saham PT Bank Central Asia Tbk. Nilai Koefisien Determinasi adalah sebesar 4,2% yang artinya besarnya proporsi variasi perubahan Harga Pasar Saham PT BCA yang dapat dijelaskan oleh variasi perubahan tingkat Suku Bunga SBI dan perubahan Kurs USD/IDR adalah sebesar 4,2% sedangkan sisanya sebesar 95,8% dijelaskan oleh variabel lainnya.

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