An Inquiry into the Effect of the Interest Rate, Gold Price, and the Exchange Rate on Stock Exchange Index: Evidence from Nepal

• Autorzy: Mitra Lal Devkota , Humnath Panta
• Języki publikacji: EN

Abstrakty

EN

This study examines the causal relationship between the Nepalese Stock Exchange (NEPSE) Index, the interest rate, gold price, and the USD exchange rate in Nepal. The monthly time series data from January 2006 to June 2018 are used. Time series properties of the data are diagnosed using the Ng-Perron unit root test and Johansen's cointegration test. Finally, the Granger causality test based on the Vector Error Correction Model (VECM) is used to find the direction of causation, and to model the short and long-run relationships between the variables. The findings suggest that there exists a feedback relationship between the NEPSE Index and the interest rate, and there exists a unidirectional causation from the gold price to both the exchange rate and the interest rate. There is also a unidirectional causation from the exchange rate to the NEPSE Index during the sample period. These findings have implications for government agencies, investors, researchers, stakeholders, and others interested in the topic. (original abstract)

Słowa kluczowe

EN

Causality; Cointegration; Exchange rates; Interest rate

PL

Przyczynowość; Kointegracja; Kurs walutowy; Stopa procentowa

• Czasopismo: Dynamic Econometric Models
• Rocznik: 2018
• Tom: 18
• Strony: 49--65

Twórcy

autor

Mitra Lal Devkota

• University of North Georgia Dahlonega, Georgia, USA

autor

Humnath Panta

• Brenau University School of Business Administration, USA

Bibliografia

• Abdalla, I. S., Murinde, V. (1997), Exchange Rate and Stock Price Interactions in Emerging Financial Markets: Evidence on India, Korea, Pakistan and the Philippines, Applied Financial Economics, 7(1), 25-35, DOI: http://dx.doi.org/10.1080/096031097333826.
• Alam, M., Uddin, G. (2009), Relationship Between Interest Rate and Stock Price: Empirical Evidence from Developed and Developing Countries, DOI: http://dx.doi.org/10.5539/ijbm.v4n3p43.
• Bhattacharjee, K., Bang, N. P., Mamidanna, S. (2014), Transmission of Pricing Information Between Level III ADRs and Their Underlying Domestic Stocks: Empirical Evidence from India. Journal of Multinational Financial Management, 24, 43-59, DOI: http://dx.doi.org/10.1016/j.mulfin.2013.12.001.
• Buyuksalvarci, A. (2010), The Effects of Macroeconomics Variables on Stock Returns: Evidence from Turkey, European Journal of Social Sciences, 14(3), 404-416.
• Cheung, Y. W., Lai, K. S. (1993), Finite-Sample Sizes of Johansen's Likelihood Ratio Tests for Cointegration, Oxford Bulletin of Economics and Statistics, 55(3), 313-328, DOI: http://dx.doi.org/10.1111/j.1468-0084.1993.mp55003003.x.
• Cuestas, J. C., Harrison, B. (2008) Testing for Stationarity of Inflation in Central and Eastern European Countries (No. 2008/13).
• Cuestas, J. C., Staehr, K. (2013), Fiscal Shocks and Budget Balance Persistence in the EU Countries from Central and Eastern Europe, Applied Economics, 45(22), 3211-3219, DOI: http://dx.doi.org/10.1080/00036846.2012.703316.
• Engle, R. F., Granger, C. W. (1987), Cointegration and Error Correction: Representation, Estimation, and Testing, Econometrica: Journal of the Econometric Society, 251-276, DOI: http://dx.doi.org/10.2307/1913236, https://www.jstor.org/stable/1913236.
• Fama, E. F. (1981), Stock Returns, Real Activity, Inflation and Money, American Economic Review, 71, 545-565, DOI: https://www.jstor.org/stable/1806180.
• Gaire, H. (2016), Stock Index, Interest Rate and Gold Price of Nepal: Cointegration and Causality Analysis, Retrieved From https://nrb.org.np/ecorev/articles/2.NEPSEIndex20180206.pdf.
• Granger, C. W. (1981), Some Properties of Time Series Data and Their Use in Econometric Model Specification. Journal of Econometrics, 16(1), 121-130, DOI: http://dx.doi.org/10.1016/0304-4076(81)90079-8.
• Gregoriou, A., Kontonikas, A., Montagnoli, A. (2006), Euro Area Inflation Differentials: Unit Roots, Structural Breaks and Nonlinear Adjustment, University of Glasgow, Department of Economics, Working Paper, (2007_13).
• Gunes, S. (2007), Functional Income Distribution in Turkey: A Cointegration and VECM Analysis, Journal of Economic and Social Research, 9(2), 23-36.
• Harris, R., Sollis, R. (2003), Applied Time Series Modelling and Forecasting, Wiley.
• Johansen, S. (1988), Statistical Analysis of Cointegration Vectors, Journal of Economic Dynamics and Control, 12, 231-254, DOI: http://dx.doi.org/10.1016/0165-1889(88)90041-3.
• Johansen, S. (1991), Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models, Econometrica, 59, 1551-1580, DOI: https://www.jstor.org/stable/2938278.
• Johansen, S. (1992), Determination of Cointegration Rank in the Presence of a Linear Trend. Oxford Bulletin of Economics and Statistics, 54(3), 383-397, DOI: http://dx.doi.org/10.1111/j.1468-0084.1992.tb00008.x.
• Johansen, S., Juselius, K. (1990), Maximum Likelihood Estimation and Inference on Cointegration-with Applications to the Demand for Money, Oxford Bulletin of Economics and Statistics, 52, 169-210, DOI: http://dx.doi.org/10.1111/j.1468-0084.1990.mp52002003.x.
• Kasa, K. (1992), Common Stochastic Trends in International Stock Markets, Journal of Monetary Economics, 29(1), 95-124, DOI: http://dx.doi.org/10.1016/0304-3932(92)90025-W.
• Levin, E. J., Montagnoli, A., Wright, R. E. (2006), Short-Run and Long-Run Determinants of the Price of Gold.
• Mishra, P. K., Das, J. R., Mishra, S. K. (2010), Gold Price Volatility Andstock Market Returns in India. American Journal of Scientific Research, 9(9), 47-55.
• Moore, G. H. (1990), ANALYSIS: Gold Prices and a Leading Index of Inflation. Challenge, 33(4), 52-56, DOI: http://dx.doi.org/10.1080/05775132.1990.11471444.
• Mukherjee, T. K., Naka, A. (1995), Dynamic Relations between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model, Journal of Financial Research, 18, 223-237, DOI: http://dx.doi.org/10.1111/j.1475-6803.1995.tb00563.x.
• Ng, S., Perron, P. (2001), Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power. Econometrica, 69(6), 1519-1554, DOI: https://www.jstor.org/stable/2692266.
• Nieh, C. C., Lee, C. F. (2001), Dynamic Relationship Between Stock Prices and Exchange Rates for G-7 Countries, The Quarterly Review of Economics and Finance, 41(4), 477-490, DOI: http://dx.doi.org/10.1016/S1062-9769(01)00085-0.
• Osińska, M. (2011), On the Interpretation of Causality in Granger Sense, Dynamic Econometric Models, 11, 129-140, DOI: http://dx.doi.org/10.12775/DEM.2011.009.
• Pilinkus, D., Boguslauskas, V. (2009), The Short-Run Relationship Between Stock Market Prices and Macroeconomic Variables in Lithuania: An Application of the Impulse Response Function. Engineering Economics, 65(5).
• Raihan, S., Abdullah, S. M., Barkat, A., Siddiqua, S. (2017), Mean Reversion of the Real Exchange Rate and the Validity of PPP Hypothesis in the Context of Bangladesh: A Holistic Approach.
• Ratanapakorn, O., Sharma, S. C. (2007), Dynamic Analysis between the US Stock Returns and the Macroeconomic Variables, Applied Financial Economics, 17(5), 369-377, DOI: http://dx.doi.org/10.1080/09603100600638944.
• Serletis, A., King, M. (1997), Common Stochastic Trends and Convergence of European Union Stock Markets. The Manchester School, 65(1), 44-57, DOI: http://dx.doi.org/10.1111/1467-9957.00042.
• Smith, G. (2001), The Price of Gold and Stock Price Indices for the United States, The World Gold Council, 8(1), 1-16.
• Smyth, R., Nandha, M. (2003), Bivariate Causality Between Exchange Rates and Stock Prices in South Asia. Applied Economics Letters, 10(11), 699-704, DOI: http://dx.doi.org/10.1080/1350485032000133282.
• Srinivasan, P. (2014), Gold Price, Stock Price and Exchange Rate Nexus: The Case of India. Romanian Economic Journal, 17(52).
• Sujit, K. S., Kumar, B. R. (2011), Study on Dynamic Relationship Among Gold Price, Oil Price, Exchange Rate and Stock Market Returns. International journal of applied business and economic research, 9(2), 145-165.
• Syczewska, E. M. (2014), The EURPLN, DAX and WIG20: The Granger Causality Tests Before and During the Crisis, Dynamic Econometric Models, 14, 93-104, DOI: http://dx.doi.org/10.12775/DEM.2014.005.
• Tsoukalas, D. (2003), Macroeconomic Factors and Stock Prices in the Emerging Cypriot Equity Market, Managerial Finance, 29(4), 87-92, DOI: http://dx.doi.org/10.1108/03074350310768300.
• Tursoy, T., Gunsel, N., Rjoub, H. (2008). Macroeconomic Factors, the APT and the Istanbul Stock Market. International Research Journal of Finance and Economics, 22, 49-57.
• Upadhyaya, K. P., Nag, R., Mixon Jr, F. G. (2018). Stock Market Capitalization and the Macroeconomics of Transition Economies: The Case of India. Dynamic Econometric Models, 18, 35-47, DOI: http://dx.doi.org/10.12775/DEM.2018.002.
• Vygodina, A. V. (2006), Effects of Size and International Exposure of the US Firms on the Relationship Between Stock Prices and Exchange Rates. Global Finance Journal, 17(2), 214-223, DOI: http://dx.doi.org/10.1016/j.gfj.2006.05.001.
• Wongbangpo, P., Sharma, S. C. (2002), Stock Market and Macroeconomic Fundamental Dynamic Interaction: ASEAN-5 Countries, Journal of Asian Economics, 13, 27-51, DOI: http://dx.doi.org/10.1016/S1049-0078(01)00111-7.
• Wooldridge, M. (2011). Modern Econometrics. McGraw Hill.

Identyfikatory

DOI

10.12775/DEM.2018.003