Original scientific paper
https://doi.org/10.1080/1331677X.2021.1966639
Time-varying influence of interest rates on stock returns: evidence from China
Guangtong Gu
Wenjie Zhu
Chengjun Wang
Abstract
Whether a stock market should matter or not when monetary
policy is concerned seems to be a controversial issue. The purpose of this study is to indicate whether the central bank should
use monetary policy to help the stock market or not. Based on
macroeconomic data such as interest rate and the stock market,
we adopt a novel Bayesian time-varying regression model and
determine that the impact of interest rate changes on stock
returns varies over time in China, after controlling various macroeconomic factors. Although on average interest rates negatively
impact stock price returns, they tend to have an abnormal positive effect at market high points, following a time-varying
dynamic pattern. Surprisingly, during periods of overheated economic development, an increase in interest rates cannot suppress
the rise in stock prices. Therefore, policymakers need to pay
attention when accelerating the marketisation of interest rates
and initiating the preventive role of timely and strategic adjustment of interest rates.
Keywords
Interest rate; stock return; time-varying influence; monetary policy
Hrčak ID:
302285
URI
Publication date:
31.3.2023.
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