Stock Market Essay

5917 Words 24 Pages
International Journal of Business and Management

March, 2009

Relationship between Interest Rate and Stock Price: Empirical Evidence from Developed and Developing Countries
Md. Mahmudul Alam (Corresponding author) CRM, Marketing Division, Grameenphone Ltd 47 Shantinarar, Dhaka 1217, Bangladesh Tel: 880-1711-503-782 E-mail:

Md. Gazi Salah Uddin Department of Business Administration East West University 43, Mohakhali C/A, Dhaka 1212, Bangladesh E-mail: Abstract Stock exchange and interest rate are two crucial factors of economic growth of a country. The impacts of interest rate on stock exchange provide important implications for monitory policy, risk management practices, financial securities
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Keywords: Efficient market hypothesis, Random walk model, Market return, Interest rate, Investment, Panel 1. Introduction In prospects of overall economy, Ologunde, Elumilade, and Asaolu (2006) mentioned that share market makes it possible for the economy to ensure long-term commitments in real capital. For that reason, level of efficiency measurement of the stock market is very important to investors, policy makers and other major players, who ensure long-term real capital in an economy. A mature of the stock market efficiency level is perceived across the globe as a barometer of the economic health and prospect of a country as well as a register of the confidence of domestic and global investors. Interest rate is one of the important macroeconomic variables, which is directly related to economic growth. Generally, interest rate is considered as the cost of capital, means the price paid for the use of money for a period of time. From the point of view of a borrower, interest rate is the cost of borrowing money (borrowing rate). From a lender’s point of view, interest rate is the fee charged for lending money (lending rate). Good investors always look for investing in an efficient market. In an inefficient market few people are able to generate extra ordinary profit causes of confidence losses of general people about the market. In such cases, if the rate of interest paid by banks to depositors

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