The impact of short term interest rate in stock prices

Charles University in Prague Faculty of Social Sciences Institute of Economic Studies MASTER THESIS The Impact of Short-term Interest Rate on Stock Prices in the Czech Republic Author: Bc Štefan Michlian Supervisor: PhDr Michael Princ Academic Year: 2013/2014 ii Declaration of Authorship The author hereby declares that he compiled this thesis independently, using only the listed resources and literature, and the thesis has not been used to obtain a different or the same degree The author grants to Charles University permission to reproduce and to distribute copies of this thesis document in whole or in part Prague, May, 2014 Signature iii Acknowledgments The author is especially grateful to PhDr Michael Princ for his guidance and valuable comments that helped me to finish this thesis I would also like to thank my family for the continuous support during my studies iv 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 JEL Classification G11, G12, G14, G15 Keywords Short-term interest rate, Stock prices, GARCH analysis Author’s e-mail stefan.michlian@gmail.com Supervisor’s e-mail mp.princ@seznam.cz Bibliographic Record Michlian, Š (2014): “The Impact of Short-term Interest Rate on the Stock Prices in the Czech Republic.” Master Thesis, Charles University in Prague, Faculty of Social Sciences, Institute of Economic Studies v Abstrakt Tato práce se zaměřuje na zkoumání vztahu mezi krátkodobou úrokovou mírou a cenami akcií Hlavní ideou je, že pokud dojde ke snížení úrokových měr, poklesne současná hodnota budoucích příjmů z dividend, což vyústí v pokles poptávky po akciích a tedy i jejich cen V naší práci aplikujeme GJR-GARCH-t-M model, abychom zkoumali vliv české úrokové míry (14-denní PRIBOR) na index Burzy cenných papírů Praha (PX index) Narozdíl od většiny studií se nám nepodařilo nalézt žádný signifikantní vztah mezi úrokovou sazbou PRIBOR a PX indexem (ani v prvním, ani v druhém momentu) Tento fakt vysvětlujeme neobvyklou skladbou PX indexu se značnou váhou bankovních institucí Zjistili jsme, že nedávná hospodářská recese signifikantně změnila chování českého burzovního trhu JEL Klasifikace G11, G12, G14, G15 Klíčová slova Krátkodobá úroková míra, Ceny akcií, GARCH analýza E-mail autora stefan.michlian@gmail.com E-mail vedoucího práce mp.princ@seznam.cz Bibliografický Záznam Michlian, Š (2014): “The Impact of Short-term Interest Rate on the Stock Prices in the Czech Republic.” Diplomová Práce, Univerzita Karlova v Praze, Fakulta Sociálních Věd, Institut Ekonomických Studií Contents Acronyms vii Master Thesis Proposal viii Introduction 11 Motivation .15 1.1 Theoretical Background 15 1.2 Literature Review .17 Methodology 26 2.1 Conditional Heteroskedasticity Models .26 2.1.1 ARCH Model 26 2.1.2 GARCH Model 29 2.1.3 GARCH-t Model 31 2.1.4 GARCH-M Model 33 2.1.5 GJR-GARCH Model 34 2.1.6 GJR-GARCH-t-M model 35 2.2 Tests 36 2.2.1 ARCH-LM Test 36 2.2.2 Dickey-Fuller Test 36 2.2.3 Chow Test 38 2.2.4 Hypotheses Testing 39 Models, Variables, Data 40 3.1 Variables and Data 40 3.2 Models 40 3.3 Hypotheses 45 3.3.1 Model A Hypothesis 45 3.3.2 Model B and C Hypotheses 45 vi Empirical Results 47 4.1 Preliminary Analysis 47 4.1.1 Data Properties 47 4.1.2 The Chow test 48 4.1.3 ARCH-LM test 48 4.2 Results 50 4.2.1 Mean equation 50 4.2.2 Variance equation 53 4.3 Post-estimation Diagnostics 54 4.4 Hypotheses Testing .55 Discussion 59 Conclusion 63 References 65 Appendix 69 vii Acronyms ACF ADF ARCH ARMA CZK GARCH GARCH-t GARCH-M GJR OLS PACF PRIBOR PX index T-GARCH VAR VECM AutoCorrelation Function Augmented Dickey-Fuller test AutoRegressive Conditional Heteroskedasticity AutoRegressive Moving Average Czech Crown Generalized ARCH GARCH with t-distributed errors GARCH in-mean Glosten, Jagganathan, Runkle (1993) specification Ordinary Least Squares Partial AutoCorrelation Function Prague InterBank Offered Rate Prague Stock Exchange Index Threshold GARCH Vector AutoRegression Vector Error Correction Model viii Master Thesis Proposal Institute of Economic Studies Faculty of Social Sciences Charles University in Prague Author: E-mail: Phone: Specializati on: Bc Štefan Michlian stefan.michlian@gmail.co m 607609355 Finance, Financial Markets and Banking Supervisor: E-mail: PhDr Michael Princ mp.princ@seznam.cz Phone: Defense Planned: 224314704 June 2014 Proposed Topic: The Impact of Short-term Interest Rate on Stock Prices in the Czech Republic Topic Characteristics: The importance of the stock market is expressed by the general feeling that it is considered to be an indicator of the health of the economy Also interest rate has strong effect on the economic development Both of these economic variables belong to the most important in the economy, so it is crucial to understand their mutual relationship The idea is that if interest rate on bank deposits increases, it reduces the present value of future dividend’s income, which makes holding stocks less attractive relative to fixed income securities, so investors change structure of their portfolios, and switch capital from stocks to banks At the same time increase in interest rate leads to decrease in investments and economic activities which depress stock prices In our paper we will focus on the case of the Czech Republic to model the impact of 14-days PRIBOR rate on Prague Stock Exchange index using daily data We also propose a comparison of estimation results for the periods before the start of recent Great Recession and after it to be able to find out whether economic crisis has somehow influenced investors in the process of allocating capital The results of our analysis could be helpful for investors in managing their portfolios, but also for policy makers for better understanding of tools to achieve economic growth Hypotheses: Short-term interest rate has statistically significant negative impact on stock prices Great Recession in 2007 has significantly changed the magnitude of this effect There is significant trade-off between return volatility and return (risk premium) Return volatility is time variant not homoskedastic (ARCH, GARCH effect exists) Methodology: In our paper we will model Prague Stock Exchange index using GARCH-M model Because the financial and macroeconomic data are almost always non-stationary, which will be tested with Augmented Dickey Fuller (ADF) test, it is expected that the data will have to be transformed in logarithmic differenced form to model stock market returns According to Schwarz Criterion, Akaike Info Criterion, and rule of parsimony, we will decide how many AR and MA lags we will include in our model ARCH-LM test will be applied to determine whether conditional heteroskedasticity is present Since stock market indices suffer from typical clustering, we will use GARCH-M (GARCH in mean) model The advantage of such a model is we include return volatility variable modelled by variance equation into mean equation as dependent variable It allows us to estimate the trade-off relationship between returns and volatility (risk premium) Mean equation will also consist of our key variable interest rate and other control variables which are considered having explanatory power on stock market index such as exchange rate, gold price or oil price ix Outline: Introduction Literature review Methodology Results Discussion Conclusion Core Bibliography: AHMAD, Muhammad Ishfaq, Ramiz UR REHMAN and Awais RAOOF 2010 Do Interest Rate, Exchange Rate Effect Stock Returns? 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28 29 30 31 32 33 34 35 36 AC 0.032 -0.063 -0.041 0.030 0.003 0.011 0.009 0.007 -0.022 0.011 0.033 0.001 -0.007 0.053 -0.033 -0.015 0.033 0.027 0.017 -0.047 0.006 0.004 0.022 -0.010 0.004 -0.026 0.021 0.046 0.004 -0.005 0.007 -0.025 -0.047 -0.033 -0.027 0.008 Residuals PAC Q-Stat 0.032 3.197 -0.064 15.746 -0.037 21.083 0.029 23.915 -0.003 23.952 0.013 24.358 0.011 24.623 0.007 24.793 -0.020 26.330 0.014 26.744 0.030 30.218 -0.001 30.224 -0.001 30.364 0.055 39.125 -0.039 42.633 -0.007 43.346 0.034 46.901 0.017 49.283 0.021 50.240 -0.042 57.197 0.011 57.328 -0.003 57.393 0.021 58.906 -0.011 59.235 0.002 59.283 -0.022 61.399 0.023 62.778 0.039 69.551 0.001 69.610 0.003 69.690 0.008 69.830 -0.027 71.777 -0.048 78.969 -0.029 82.521 -0.041 84.908 0.003 85.113 Source: Author's computations Prob 0.074 0.000 0.000 0.000 0.000 0.000 0.001 0.002 0.002 0.003 0.001 0.003 0.004 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Standardized Residuals AC PAC Q-Stat 0.033 0.033 3.518 -0.023 -0.024 5.185 -0.003 -0.001 5.208 0.057 0.057 15.443 -0.016 -0.020 16.297 0.001 0.005 16.300 0.013 0.012 16.835 0.021 0.017 18.247 0.033 0.035 21.707 0.013 0.011 22.214 0.007 0.007 22.371 0.000 -0.001 22.371 -0.027 -0.030 24.744 0.000 0.001 24.745 0.014 0.011 25.329 -0.004 -0.006 25.386 -0.008 -0.005 25.579 0.013 0.011 26.154 0.015 0.012 26.878 -0.034 -0.033 30.527 0.025 0.030 32.562 -0.007 -0.011 32.725 -0.011 -0.010 33.088 -0.014 -0.009 33.705 0.014 0.010 34.338 0.000 -0.001 34.338 0.018 0.019 35.377 0.035 0.036 39.383 -0.003 -0.006 39.410 0.002 0.003 39.418 -0.018 -0.019 40.453 -0.030 -0.031 43.272 -0.027 -0.026 45.644 0.003 0.003 45.668 -0.002 -0.003 45.683 0.002 0.000 45.691 Prob 0.061 0.075 0.157 0.004 0.006 0.012 0.018 0.019 0.010 0.014 0.022 0.034 0.025 0.037 0.046 0.063 0.082 0.096 0.108 0.062 0.051 0.066 0.080 0.090 0.101 0.127 0.130 0.075 0.094 0.117 0.119 0.088 0.070 0.087 0.107 0.129 70 Table A.2: Correlogram of squared residuals and squared standardized residuals (model A) Lag 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 AC 0.351 0.368 0.313 0.176 0.317 0.148 0.186 0.258 0.225 0.345 0.278 0.204 0.211 0.161 0.186 0.119 0.191 0.135 0.142 0.171 0.102 0.135 0.124 0.101 0.183 0.115 0.153 0.164 0.079 0.089 0.088 0.079 0.044 0.065 0.049 0.077 Squared Residuals PAC Q-Stat 0.351 389.2 0.279 816.6 0.151 1126.7 -0.040 1225.0 0.198 1543.6 -0.047 1612.6 0.034 1722.2 0.139 1932.7 0.105 2093.3 0.162 2471.7 0.072 2716.0 -0.051 2847.5 -0.025 2989.3 0.008 3071.1 0.021 3181.0 -0.048 3225.8 0.109 3342.3 -0.048 3400.5 -0.026 3464.2 0.001 3557.3 -0.040 3590.7 -0.012 3648.8 0.045 3697.8 0.002 3730.0 0.079 3836.6 0.013 3878.9 0.016 3953.7 0.024 4039.0 -0.035 4058.9 -0.066 4084.4 0.041 4108.9 0.016 4129.0 -0.075 4135.2 0.008 4148.6 -0.031 4156.3 -0.014 4175.3 Source: Author's computations Prob 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Squared Standardized Residuals AC PAC Q-Stat Prob -0.022 -0.022 1.525 0.217 0.021 0.021 2.927 0.231 -0.001 0.000 2.929 0.403 -0.015 -0.016 3.666 0.453 0.018 0.018 4.736 0.449 0.010 0.011 5.043 0.538 0.021 0.021 6.465 0.487 -0.004 -0.004 6.516 0.590 -0.004 -0.005 6.572 0.682 -0.026 -0.026 8.723 0.559 0.016 0.015 9.489 0.577 0.015 0.015 10.173 0.601 0.002 0.002 10.192 0.678 0.042 0.041 15.882 0.321 -0.001 0.002 15.886 0.390 -0.007 -0.008 16.024 0.451 0.011 0.011 16.398 0.496 -0.020 -0.019 17.629 0.480 0.009 0.006 17.903 0.529 -0.006 -0.006 18.014 0.587 0.020 0.019 19.296 0.566 0.025 0.026 21.213 0.508 -0.018 -0.017 22.255 0.505 -0.004 -0.004 22.297 0.562 -0.005 -0.005 22.381 0.614 0.019 0.017 23.524 0.603 0.002 0.002 23.537 0.656 0.013 0.009 24.086 0.677 -0.010 -0.009 24.389 0.710 -0.024 -0.023 26.229 0.663 -0.020 -0.021 27.529 0.645 -0.001 0.001 27.532 0.692 0.010 0.007 27.869 0.721 0.029 0.029 30.512 0.639 0.003 0.003 30.539 0.683 -0.010 -0.010 30.835 0.713 71 Table A.3: Correlogram of residuals and standardized residuals (model B) Lag 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 AC 0.022 -0.036 0.005 0.039 -0.029 0.008 0.006 0.030 0.002 0.021 0.020 0.000 -0.018 0.002 0.013 0.010 0.017 -0.022 -0.013 -0.032 0.052 -0.021 -0.026 -0.001 0.010 0.000 0.014 0.038 0.007 -0.028 -0.005 -0.012 -0.024 0.013 0.002 -0.003 Residuals PAC Q-Stat 0.022 0.912 -0.037 3.351 0.006 3.393 0.038 6.278 -0.030 7.782 0.012 7.886 0.003 7.945 0.029 9.567 0.003 9.572 0.021 10.376 0.019 11.131 -0.002 11.132 -0.015 11.722 0.000 11.729 0.011 12.036 0.010 12.223 0.018 12.763 -0.024 13.627 -0.012 13.929 -0.034 15.891 0.052 20.933 -0.024 21.784 -0.022 23.027 0.000 23.028 0.002 23.227 0.006 23.228 0.014 23.593 0.039 26.244 0.005 26.327 -0.022 27.788 -0.005 27.838 -0.018 28.103 -0.021 29.162 0.018 29.481 -0.002 29.487 -0.004 29.501 Source: Author's computations Prob 0.339 0.187 0.335 0.179 0.169 0.247 0.337 0.297 0.386 0.408 0.432 0.518 0.551 0.628 0.676 0.728 0.752 0.753 0.788 0.723 0.463 0.473 0.459 0.518 0.564 0.620 0.653 0.560 0.608 0.582 0.630 0.664 0.659 0.689 0.731 0.770 Standardized Residuals AC PAC Q-Stat 0.022 0.022 0.892 -0.035 -0.036 3.157 -0.017 -0.015 3.689 0.039 0.038 6.460 -0.021 -0.024 7.287 0.013 0.016 7.588 -0.017 -0.018 8.131 0.032 0.032 10.017 0.023 0.022 10.975 0.016 0.015 11.462 0.011 0.015 11.685 0.009 0.007 11.848 -0.042 -0.041 15.162 -0.027 -0.025 16.488 0.016 0.015 16.955 0.019 0.014 17.608 -0.001 0.001 17.610 -0.031 -0.031 19.418 -0.007 -0.008 19.518 -0.024 -0.029 20.584 0.044 0.045 24.206 -0.018 -0.017 24.819 -0.029 -0.025 26.375 -0.003 0.001 26.390 0.003 -0.005 26.409 0.010 0.013 26.602 0.012 0.010 26.886 0.028 0.033 28.406 -0.001 0.000 28.409 -0.005 -0.004 28.463 -0.011 -0.012 28.699 -0.030 -0.034 30.425 -0.017 -0.016 30.985 0.012 0.014 31.258 0.013 0.013 31.558 -0.012 -0.018 31.840 Prob 0.345 0.206 0.297 0.167 0.200 0.270 0.321 0.264 0.277 0.323 0.388 0.458 0.297 0.284 0.322 0.347 0.414 0.367 0.424 0.422 0.283 0.306 0.283 0.334 0.386 0.430 0.470 0.443 0.496 0.546 0.585 0.546 0.568 0.603 0.635 0.667 72 Table A.4: Correlogram of squared residuals and squared standardized residuals (model B) Lag 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 AC 0.123 0.262 0.095 0.094 0.138 0.089 0.079 0.078 0.065 0.059 0.086 0.097 0.053 0.077 0.072 0.055 0.136 -0.005 0.022 0.021 0.024 0.043 0.008 -0.002 -0.019 0.040 0.010 0.040 0.005 0.007 -0.013 0.023 -0.008 0.042 -0.010 0.013 Squared Residuals PAC Q-Stat 0.123 28.0 0.251 154.8 0.043 171.4 0.018 187.6 0.103 223.1 0.043 237.9 0.008 249.5 0.030 260.7 0.025 268.6 0.009 275.2 0.047 288.9 0.061 306.4 -0.007 311.5 0.021 322.4 0.039 332.0 0.003 337.7 0.089 372.0 -0.059 372.0 -0.052 372.9 0.010 373.8 0.010 374.8 0.004 378.3 -0.018 378.4 -0.025 378.4 -0.035 379.1 0.042 382.2 0.006 382.3 0.008 385.3 -0.014 385.4 0.001 385.4 -0.026 385.7 0.019 386.7 -0.010 386.9 0.024 390.1 -0.001 390.3 0.008 390.6 Source: Author's computations Prob 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Squared Standardized Residuals AC PAC Q-Stat Prob -0.009 -0.009 0.153 0.696 0.001 0.001 0.155 0.925 -0.018 -0.018 0.738 0.864 -0.046 -0.046 4.655 0.325 0.031 0.031 6.468 0.263 0.015 0.016 6.891 0.331 0.005 0.003 6.930 0.436 -0.005 -0.006 6.974 0.539 -0.020 -0.016 7.684 0.566 -0.034 -0.033 9.769 0.461 0.008 0.007 9.890 0.540 0.020 0.019 10.641 0.560 0.026 0.024 11.915 0.535 0.036 0.035 14.317 0.426 -0.011 -0.007 14.545 0.485 0.000 0.003 14.545 0.558 0.010 0.012 14.721 0.616 -0.041 -0.042 17.926 0.461 -0.014 -0.020 18.294 0.503 0.003 0.002 18.314 0.567 0.024 0.025 19.360 0.562 0.024 0.022 20.414 0.557 -0.027 -0.023 21.752 0.535 -0.013 -0.010 22.075 0.575 -0.034 -0.033 24.222 0.507 0.032 0.029 26.119 0.457 0.001 -0.006 26.119 0.512 0.018 0.013 26.745 0.532 -0.009 -0.009 26.882 0.578 -0.029 -0.022 28.463 0.546 -0.005 -0.002 28.506 0.595 0.001 0.006 28.508 0.644 0.003 -0.003 28.531 0.689 0.043 0.037 31.962 0.568 -0.005 -0.004 32.002 0.614 -0.019 -0.016 32.659 0.628 73 Table A.5: Correlogram of residuals and standardized residuals (model C) Lag 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 AC 0.037 -0.087 -0.077 0.022 0.025 0.011 0.011 -0.008 -0.045 0.004 0.043 0.007 0.001 0.084 -0.071 -0.036 0.049 0.055 0.040 -0.056 -0.028 0.022 0.050 -0.015 0.001 -0.048 0.023 0.050 0.014 0.009 0.006 -0.043 -0.056 -0.059 -0.064 0.014 Residuals PAC Q-Stat 0.037 1.795 -0.088 11.737 -0.071 19.569 0.020 20.195 0.011 20.996 0.008 21.165 0.017 21.328 -0.005 21.410 -0.042 24.057 0.007 24.074 0.035 26.559 -0.001 26.626 0.010 26.629 0.093 36.125 -0.079 42.805 -0.016 44.534 0.053 47.730 0.030 51.828 0.042 53.989 -0.039 58.119 -0.015 59.157 0.021 59.833 0.044 63.245 -0.027 63.535 0.006 63.538 -0.036 66.595 0.029 67.310 0.034 70.700 0.014 70.979 0.014 71.097 0.007 71.147 -0.039 73.602 -0.058 77.909 -0.054 82.560 -0.087 88.140 -0.008 88.412 Source: Author's computations Prob 0.180 0.003 0.000 0.000 0.001 0.002 0.003 0.006 0.004 0.007 0.005 0.009 0.014 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Standardized Residuals AC PAC Q-Stat 0.027 0.027 0.980 -0.018 -0.018 1.394 0.004 0.005 1.420 0.068 0.067 7.469 -0.023 -0.027 8.171 -0.015 -0.011 8.462 0.057 0.057 12.779 0.004 -0.004 12.798 0.038 0.043 14.692 0.009 0.008 14.804 -0.002 -0.009 14.808 -0.017 -0.013 15.170 -0.024 -0.028 15.948 0.020 0.019 16.486 -0.006 -0.006 16.537 -0.039 -0.041 18.564 -0.015 -0.012 18.880 0.055 0.050 22.976 0.035 0.034 24.633 -0.051 -0.043 28.090 -0.005 -0.002 28.120 -0.010 -0.018 28.267 -0.007 -0.006 28.340 -0.026 -0.015 29.248 0.021 0.018 29.850 -0.018 -0.022 30.304 0.022 0.026 30.952 0.035 0.030 32.576 -0.002 -0.003 32.580 0.016 0.025 32.915 -0.036 -0.036 34.662 -0.031 -0.038 35.943 -0.042 -0.040 38.359 0.008 0.009 38.452 -0.044 -0.040 41.019 0.009 0.009 41.135 Prob 0.322 0.498 0.701 0.113 0.147 0.206 0.078 0.119 0.100 0.139 0.191 0.232 0.252 0.285 0.347 0.292 0.335 0.192 0.173 0.107 0.137 0.167 0.203 0.211 0.230 0.255 0.273 0.252 0.295 0.326 0.297 0.289 0.239 0.275 0.223 0.256 74 Table A.6: Correlogram of squared residuals and squared standardized residuals (model C) Lag 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 AC 0.384 0.381 0.344 0.182 0.339 0.151 0.197 0.281 0.246 0.386 0.306 0.218 0.233 0.168 0.201 0.127 0.199 0.152 0.156 0.193 0.110 0.146 0.137 0.114 0.213 0.124 0.176 0.186 0.090 0.104 0.105 0.089 0.053 0.072 0.059 0.091 Squared Residuals PAC Q-Stat 0.384 194.6 0.274 385.9 0.168 542.0 -0.065 585.5 0.218 737.4 -0.079 767.4 0.054 818.5 0.148 923.5 0.126 1003.7 0.181 1201.6 0.071 1325.8 -0.076 1389.2 -0.033 1461.5 0.003 1498.9 0.025 1552.5 -0.051 1574.0 0.128 1626.8 -0.068 1657.4 -0.021 1690.0 -0.015 1739.6 -0.053 1755.7 -0.012 1784.1 0.066 1809.4 0.012 1827.0 0.110 1888.1 -0.005 1908.8 0.023 1950.3 0.014 1997.0 -0.033 2007.8 -0.088 2022.4 0.087 2037.3 0.008 2048.0 -0.091 2051.7 0.002 2058.7 -0.045 2063.5 -0.026 2074.8 Source: Author's computations Prob 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Squared Standardized Residuals AC PAC Q-Stat Prob 0.050 0.050 3.329 0.068 0.016 0.013 3.665 0.160 0.012 0.011 3.860 0.277 0.004 0.002 3.877 0.423 -0.007 -0.008 3.951 0.557 -0.021 -0.021 4.553 0.602 0.031 0.033 5.833 0.559 -0.026 -0.029 6.757 0.563 0.007 0.009 6.815 0.656 -0.037 -0.038 8.601 0.570 0.012 0.016 8.808 0.640 0.001 0.001 8.810 0.719 -0.011 -0.009 8.964 0.776 0.035 0.033 10.550 0.721 0.017 0.016 10.950 0.756 -0.016 -0.021 11.283 0.792 0.015 0.019 11.580 0.825 0.002 -0.003 11.588 0.868 0.060 0.062 16.397 0.631 -0.018 -0.024 16.832 0.664 0.021 0.021 17.422 0.685 0.014 0.012 17.701 0.724 -0.003 -0.003 17.710 0.773 -0.005 -0.004 17.740 0.815 0.009 0.013 17.847 0.849 -0.006 -0.015 17.900 0.879 -0.006 0.004 17.949 0.905 0.013 0.009 18.190 0.921 -0.023 -0.021 18.924 0.923 -0.034 -0.034 20.462 0.904 -0.025 -0.019 21.280 0.904 -0.015 -0.012 21.568 0.918 0.018 0.019 22.025 0.927 -0.003 -0.006 22.040 0.943 -0.002 -0.001 22.046 0.957 -0.011 -0.017 22.213 0.965 75 Table A.7: The sources of variables PX index https://www.pse.cz/dokument.aspx?k=Burzovni-Indexy 14-days PRIBOR rate http://www.cnb.cz/en/financial_markets/money_market/pribor/year_form.jsp Exchange rate EUR/CZK https://www.cnb.cz/en/financial_markets/foreign_exchange_market Gold price http://research.stlouisfed.org/fred2/series/GOLDAMGBD228NLBM Oil price http://research.stlouisfed.org/fred2/series/DCOILWTICO Source: Author's computations Table A.8: The PX index base Instrument ČEZ VIG ERSTE GROUP BANK KOMERČNÍ BANKA TELEFÓNICA C.R STOCK UNIPETROL PHILIP MORRIS ČR PEGAS NONWOVENS CETV FORTUNA TMR NWR ORCO Total Share of Market Capitalization[%] 22.21 20.77 19.21 19.04 6.08 3.12 2.44 1.93 1.78 1.18 0.9 0.6 0.44 0.31 100 Source: http://www.bcpp.cz/Statistika/Burzovni-Indexy/Default.aspx?bi=1 76 Figure A.1: Residuals (model A) 15 10 05 00 -.05 -.10 -.15 01 02 03 04 05 06 07 08 09 10 11 12 13 Residuals Source: Author's computations Figure A.2: Standardized residuals (model A) -2 -4 -6 01 02 03 04 05 06 07 08 09 Standardized Residuals Source: Author's computations 10 11 12 13 77 Figure A.3: Conditional standard deviation process (model A) 08 07 06 05 04 03 02 01 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Conditional standard deviation Source: Author's computations Figure A.4: Residuals (model B) 10 08 06 04 02 00 -.02 -.04 -.06 -.08 01 02 03 04 05 Residuals Source: Author's computations 06 07 08 78 Figure A.5: Standardized residuals (model B) -2 -4 -6 01 02 03 04 05 06 07 08 Standardized Residuals Source: Author's computation Figure A.6: Conditional standard deviation process (model B) 040 035 030 025 020 015 010 005 000 01 02 03 04 05 06 Conditional standard deviation Source: Author's computations 07 08 79 Figure A.7: Residuals (model C) 15 10 05 00 -.05 -.10 -.15 III IV I II III IV I 2009 II III IV I 2010 II III IV I II III IV 2011 I 2012 II III IV I 2013 Residuals Source: Author's computations Figure A.8: Standardized residuals (model C) -1 -2 -3 -4 -5 III IV I II III IV 2009 I II III IV 2010 I II III IV 2011 I II III IV 2012 Standardized Residuals Source: Author's computations I II III IV I 2013 80 Figure A.6: Conditional standard deviation process (model C) 07 06 05 04 03 02 01 00 III IV I II III IV 2009 I II III IV 2010 I II III IV 2011 I II III IV 2012 Conditional standard deviation Source: Author's computations I II III IV I 2013 ... aspect The short- term interest rates tend to be more often a significant determinant of stock indices than the long -term interest rates We can think about the short and long -term interest rates... the impact of HIBOR on daily closing stock index prices in one model and the impact of overnight HIBOR on opening stock index prices in the second model He found that the impact of short- term interest. .. effect Therefore, we are interested in two effects originating from the interest rate: the effect of interest rate changes on stock market returns and the effect of interest rate volatility on stock