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Impact interest rate and inflation on stock market

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Nitesh Dubedi
Nitesh Dubedi

Presentation of research report entitled "Impact of Interest Rate and Inflation on Stock Market: In Evidence with NEPSE Index" For further informations contact : nitesh.dubedi.9@gmail.com

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IMPACT INTEREST RATE AND INFLATION ON STOCK MARKET: IN EVIDENCE WITH NEPSE INDEX Presented By: Nitesh Kumar Dubedi
PURPOSE OF THE STUDY ? To access if there is any relationship between interest rate and inflation with stock market. ? To examine the impact of interest rate and inflation on stock market index. ? To identify if there is any differences in impact and relationship of interest rate and inflation on stock market during the period of conflict and after conflict.
DATA PRESENTATION AND ANALYSIS ? Descriptive Statistics Variables Minimum Maximum Mean Std. Deviation Interest rate 0.02 12.66 4.20 3.11 Inflation rate 26.90 100.00 53.20 22.09 NEPSE index 163.40 1036.10 446.08 282.91
DATA PRESENTATION AND ANALYSIS ? Categorical Descriptive Statistics Category Variables Minimum Maximum Mean Std. Deviation Conflict Period Interest rate 1.47 12.66 4.70 3.07 Inflation rate 26.90 43.60 35.98 5.43 NEPSE index 163.40 360.70 239.24 69.62 Post Conflict Period Interest rate 0.02 8.52 3.71 3.24 Inflation rate 47.10 100 70.41 18.51 NEPSE index 362.90 1036.10 652.91 262.79
DATA PRESENTATION AND ANALYSIS ? Correlation Analysis ? *. Correlation is significant at the 0.05 level (1-tailed). **. Correlation is significant at the 0.01 level (1-tailed). Variables Interest rate Inflation rate NEPSE index Interest rate 1 Inflation rate -.427* (0.03) 1 NEPSE index -0.298 (0.101) .727** (0.001) 1
DATA PRESENTATION AND ANALYSIS ? Categorical Correlation Analysis ? *. Correlation is significant at the 0.05 level (1-tailed). Category Variables Interest rate Inflation rate NEPSE index Conflict Period Interest rate 1 Inflation rate -.681* (0.015) 1 NEPSE index -0.062 (0.433) 0.454 (0.094) 1 Post Conflict Period Interest rate 1 Inflation rate -0.532 (0.057) 1 NEPSE index -0.37 (0.147) 0.309 (0.192) 1
DATA PRESENTATION AND ANALYSIS ? Independent Sample t-test Variable Category Mean Std. Deviation Std. Error Mean p-value Mean difference Interest rate Conflict Period 4.70 3.07 0.97 (0.50) 0.98Post Conflict Period 3.71 3.24 1.02 Inflation rate Conflict Period 35.98 5.43 1.72 (0.001) -34.43Post Conflict Period 70.41 18.51 5.85 NEPSE index Conflict Period 239.24 69.62 22.02 (0.001) -413.67Post Conflict Period 652.91 262.79 83.10
DATA PRESENTATION AND ANALYSIS ? Regression Analysis ? *. Regression is significant at the 0.05 level (1-tailed). **. Regression is significant at the 0.01 level. Model A Interest rate Inflation R2 F 1 559.863** (0.001) -27.067 (0.202) 0.089 1.75 2 -48.893 (0.686) 9.305** (0.001) 0.528 20.136 3 -59.483 (0.737) 1.43 (0.933) 9.391** (0.001) 0.528 9.517
DATA PRESENTATION AND ANALYSIS ? Categorical Regression Analysis ? *. Regression is significant at the 0.05 level (1-tailed). **. Regression is significant at the 0.01 level Category Model A Interest rate Inflation R2 F Conflict Period 1 245.79** (0.001) -1.40 (0.87) 0.00 0.03 2 29.64 (0.85) 5.83 (0.19) 0.21 2.08 3 -165.00 (0.50) 10.49 (0.31) 9.87 (0.11) 0.32 1.66 Post Conflict Period 1 764.25** (0.001) -29.99 (0.29) 0.14 1.27 2 343.63 (0.35) 4.39 (0.38) 0.10 0.85 3 581.92 (0.28) -23.20 (0.51) 2.23 (0.71) 0.15 0.64
FINDING AND CONCLUSIONS ? Findings It is found that Nepalese stock market has been behaving as expected theoretically. It has shown strong positive relationship with inflation and negative response to interest rate. ? Correlation showed the following relationship with NEPSE index Variables Relationship Significance Interest Rate Negative Significant Inflation Positive Significant
FINDING AND CONCLUSIONS ? Findings continued¡­ ? Categorical Correlation analysis showed following relationship with NEPSE index Interest Rate Inflation Conflict Period Post conflict Period Conflict Period Post conflict Period Relationship Negative Negative Positive Positive Significance Insignificant Insignificant Insignificant Insignificant
FINDING AND CONCLUSIONS ? Findings continued¡­ ? Regression analysis showed the following impact of variables on NEPSE index Interest Rate Inflation Impact Significance Impact Significance Model 1 Negative Insignificant Model 2 Positive Significant Model 3 Positive Insignificant Positive Significant
FINDING AND CONCLUSIONS ? Findings continued¡­ ? Categorical regression analysis showed the following impact of variables on NEPSE index Variables Interest Rate Inflation Category Model Impact Significance Impact Significance Conflict Period Model 1 Negative Insignificant Model 2 Positive Insignificant Model 3 Positive Insignificant Positive Insignificant Post Conflict Period Model 1 Negative Insignificant Model 2 Positive Significant Model 3 Negative Insignificant Positive Significant
ACTION AND IMPLICATIONS ? Nepalese stock market has been quite responsive to macroeconomic variables like interest rate and inflation, hence these variables are needed to be analyzed before investing/buying stock. ? The stock market price movement can be predicted in the long run by using macroeconomic variables. ? Investor can reduce microeconomic risk by undertaking a strong portfolio diversification strategy. ? The stock market price movement can be predicted in the long run by using macroeconomic variables.
IMPLICATIONS FOR FUTURE RESEARCH ? Include other macroeconomic variables that are not incorporated into this study. ? Discuss the role of other micro economic factors and institutional factors on stock price. ? Nepalese stock market is relatively very small comparing with other emerging markets, it may not be appropriate to generalize the results for all the emerging markets. In future, similar studies can be extended to incorporate other relatively bigger emerging markets so that it can be generalized.
Impact interest rate and inflation on stock market

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Impact interest rate and inflation on stock market

  • 1. IMPACT INTEREST RATE AND INFLATION ON STOCK MARKET: IN EVIDENCE WITH NEPSE INDEX Presented By: Nitesh Kumar Dubedi
  • 2. PURPOSE OF THE STUDY ? To access if there is any relationship between interest rate and inflation with stock market. ? To examine the impact of interest rate and inflation on stock market index. ? To identify if there is any differences in impact and relationship of interest rate and inflation on stock market during the period of conflict and after conflict.
  • 3. DATA PRESENTATION AND ANALYSIS ? Descriptive Statistics Variables Minimum Maximum Mean Std. Deviation Interest rate 0.02 12.66 4.20 3.11 Inflation rate 26.90 100.00 53.20 22.09 NEPSE index 163.40 1036.10 446.08 282.91
  • 4. DATA PRESENTATION AND ANALYSIS ? Categorical Descriptive Statistics Category Variables Minimum Maximum Mean Std. Deviation Conflict Period Interest rate 1.47 12.66 4.70 3.07 Inflation rate 26.90 43.60 35.98 5.43 NEPSE index 163.40 360.70 239.24 69.62 Post Conflict Period Interest rate 0.02 8.52 3.71 3.24 Inflation rate 47.10 100 70.41 18.51 NEPSE index 362.90 1036.10 652.91 262.79
  • 5. DATA PRESENTATION AND ANALYSIS ? Correlation Analysis ? *. Correlation is significant at the 0.05 level (1-tailed). **. Correlation is significant at the 0.01 level (1-tailed). Variables Interest rate Inflation rate NEPSE index Interest rate 1 Inflation rate -.427* (0.03) 1 NEPSE index -0.298 (0.101) .727** (0.001) 1
  • 6. DATA PRESENTATION AND ANALYSIS ? Categorical Correlation Analysis ? *. Correlation is significant at the 0.05 level (1-tailed). Category Variables Interest rate Inflation rate NEPSE index Conflict Period Interest rate 1 Inflation rate -.681* (0.015) 1 NEPSE index -0.062 (0.433) 0.454 (0.094) 1 Post Conflict Period Interest rate 1 Inflation rate -0.532 (0.057) 1 NEPSE index -0.37 (0.147) 0.309 (0.192) 1
  • 7. DATA PRESENTATION AND ANALYSIS ? Independent Sample t-test Variable Category Mean Std. Deviation Std. Error Mean p-value Mean difference Interest rate Conflict Period 4.70 3.07 0.97 (0.50) 0.98Post Conflict Period 3.71 3.24 1.02 Inflation rate Conflict Period 35.98 5.43 1.72 (0.001) -34.43Post Conflict Period 70.41 18.51 5.85 NEPSE index Conflict Period 239.24 69.62 22.02 (0.001) -413.67Post Conflict Period 652.91 262.79 83.10
  • 8. DATA PRESENTATION AND ANALYSIS ? Regression Analysis ? *. Regression is significant at the 0.05 level (1-tailed). **. Regression is significant at the 0.01 level. Model A Interest rate Inflation R2 F 1 559.863** (0.001) -27.067 (0.202) 0.089 1.75 2 -48.893 (0.686) 9.305** (0.001) 0.528 20.136 3 -59.483 (0.737) 1.43 (0.933) 9.391** (0.001) 0.528 9.517
  • 9. DATA PRESENTATION AND ANALYSIS ? Categorical Regression Analysis ? *. Regression is significant at the 0.05 level (1-tailed). **. Regression is significant at the 0.01 level Category Model A Interest rate Inflation R2 F Conflict Period 1 245.79** (0.001) -1.40 (0.87) 0.00 0.03 2 29.64 (0.85) 5.83 (0.19) 0.21 2.08 3 -165.00 (0.50) 10.49 (0.31) 9.87 (0.11) 0.32 1.66 Post Conflict Period 1 764.25** (0.001) -29.99 (0.29) 0.14 1.27 2 343.63 (0.35) 4.39 (0.38) 0.10 0.85 3 581.92 (0.28) -23.20 (0.51) 2.23 (0.71) 0.15 0.64
  • 10. FINDING AND CONCLUSIONS ? Findings It is found that Nepalese stock market has been behaving as expected theoretically. It has shown strong positive relationship with inflation and negative response to interest rate. ? Correlation showed the following relationship with NEPSE index Variables Relationship Significance Interest Rate Negative Significant Inflation Positive Significant
  • 11. FINDING AND CONCLUSIONS ? Findings continued¡­ ? Categorical Correlation analysis showed following relationship with NEPSE index Interest Rate Inflation Conflict Period Post conflict Period Conflict Period Post conflict Period Relationship Negative Negative Positive Positive Significance Insignificant Insignificant Insignificant Insignificant
  • 12. FINDING AND CONCLUSIONS ? Findings continued¡­ ? Regression analysis showed the following impact of variables on NEPSE index Interest Rate Inflation Impact Significance Impact Significance Model 1 Negative Insignificant Model 2 Positive Significant Model 3 Positive Insignificant Positive Significant
  • 13. FINDING AND CONCLUSIONS ? Findings continued¡­ ? Categorical regression analysis showed the following impact of variables on NEPSE index Variables Interest Rate Inflation Category Model Impact Significance Impact Significance Conflict Period Model 1 Negative Insignificant Model 2 Positive Insignificant Model 3 Positive Insignificant Positive Insignificant Post Conflict Period Model 1 Negative Insignificant Model 2 Positive Significant Model 3 Negative Insignificant Positive Significant
  • 14. ACTION AND IMPLICATIONS ? Nepalese stock market has been quite responsive to macroeconomic variables like interest rate and inflation, hence these variables are needed to be analyzed before investing/buying stock. ? The stock market price movement can be predicted in the long run by using macroeconomic variables. ? Investor can reduce microeconomic risk by undertaking a strong portfolio diversification strategy. ? The stock market price movement can be predicted in the long run by using macroeconomic variables.
  • 15. IMPLICATIONS FOR FUTURE RESEARCH ? Include other macroeconomic variables that are not incorporated into this study. ? Discuss the role of other micro economic factors and institutional factors on stock price. ? Nepalese stock market is relatively very small comparing with other emerging markets, it may not be appropriate to generalize the results for all the emerging markets. In future, similar studies can be extended to incorporate other relatively bigger emerging markets so that it can be generalized.