Theoretical and Applied Economics
No. 8 / 2012 (573)
Effects of interest rate, exchange rate and their volatilities on stock prices: evidence from banking industry of Pakistan
Iqra University, Karachi, Pakistan
Anwar Ul HAQ
Iqra University, Karachi, Pakistan
Abstract. This study investigates the effects of exchange rate, interest rates, and their volatilities on stock prices of banking industry of Pakistan. Cointegration results suggests the existance of significant negative long run relationship between exchange rate and short term interest rate with stock prices. On the other hand, positive and significant relationship exists between volatilities of exchange rate and interest rate with stock prices. Causality analysis confirms bidirectional causality between exchange rate and stock prices. Whereas, unidirectional causality runs from short term interest rate to stock prices. Sensitivity analysis confirms that the results are robust. It is suggested that investors should invest in banking sector stocks when exchange rate and interest rates are highly volatile. The result also supports the view that exchange rate and interest rate can be used as an indicator for investment decision making in banking sector stocks.
Contents
The new economic geography and regional policy in Romania
Recent evidence on concentration and competition in Turkish banking sector
Solutions against crisis applicable to the oro-dental health system in Romania
The bad public decisions’ ripple – setting the education off balance. Marketing simulation – education design decisions
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Financial stability, monetary policy and budgetary coordination in EMU
Central Bank independence
Re(De)-Forming public administration: an expert outlook on reform planning in Romania
The economic crisis – implications on methods and instruments used in quality of life studies
The Wagner hypothesis from the perspective of the Romanian economy
Effects of interest rate, exchange rate and their volatilities on stock prices: evidence from banking industry of Pakistan
Considerations on hospital financing in the context of health care decentralization