Work detail

The Impact of Short-term Interest Rate on Stock Prices in the Czech Republic

Author: Mgr. Štefan Michlian
Year: 2014 - summer
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 81
Awards and prizes: M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance.
Abstract: This thesis focuses on the relationship between short
- term interest rate and stock prices. The main idea is that if interest - rate increases, it makes holding stocks less attractive relative to fixed income securities
. Therefore, investors change the structure of their
portfolios and switch capital from stocks to banks, which results in stock prices decrease. In our thesis, we
apply GJR - GARCH - t- M model to study the impact of
Czech interest rate ( 14-day PRIBOR) on the Prague Stock Exchange ( the PX index). In contrast to the
majority of research on this topic, we have found
no impact of the PRIBOR rate on the PX index - neither
on its mean nor on its volatility. We attribute the absence of a significant relationship to exceptional
composition of the PX index. Furthermore, we
have found that the recent crisis has significantly changed the behavior of the Czech stock market




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