The study focuses on the direction and power of interactions between the capital market and the financial market. Links between these markets have been examined on the basis of short term interest rates (yield to maturity for 1-day instruments), the reference rate and the WIG index. Analyses were made for data from 20012006 and the methods used include the Grangers test, the VAR model, the impulse response function and the decomposition of prediction mistake. The analysis has demonstrated the complex nature of the relationship between stock prices and interest rates. Interest rates have been shown to exert a weak influence on stock prices. This result has two possible explanations: either changes in interest rates can be anticipated by market participants, or a reaction suppression effect of positive or negative nature has taken place.
Keywords: financial market, interest rates, stock exchange index, causality
JEL: C32, G12, G14
Jerzy Rembeza, Grzegorz Przekota - Influence of Interest Rates on the WIG Stock Index - plik pdf; (403 KB)