Stock Returns and Interest Rates around the World: A Panel Data Approach

Authors

Tibebe A. Assefa
Omar A. Esqueda
Andre V. Mollick, The University of Texas Rio Grande Valley

Document Type

Article

Publication Date

1-2017

Abstract

We examine quarterly stock returns of 21 developed and 19 developing economies from 1999 to 2013. Over this period, mean quarterly stock returns of 1.188% in developed economies contrast to 4.220% in developing economies. Economic growth has been substantially lower and interest rates have fallen (risen) in developed (developing) economies. Using dynamic panels, we find statistically significant negative effects of interest rates on stock returns in the developed countries, consistent with the expected cash flow hypothesis. In the developing markets, however, the world market portfolio is the sole determinant of stock returns. The contrasting effect of interest rates change on stock returns can be partially attributed to differing monetary policies and to the more mature capital markets inherent in developed economies.

Comments

© 2016 Elsevier Inc. Original published version available at https://doi.org/10.1016/j.jeconbus.2016.10.001

Recommended Citation

Assefa, Tibebe A., Omar A. Esqueda, and André Varella Mollick. “Stock Returns and Interest Rates around the World: A Panel Data Approach.” Journal of Economics and Business 89 (January, 2017): 20–35. https://doi.org/10.1016/j.jeconbus.2016.10.001.

First Page

20

Last Page

35

Publication Title

Journal of Economics and Business

DOI

10.1016/j.jeconbus.2016.10.001