The Effect of Interest and Inflation Rates on Stock Returns: Quantile Regression Analysis for Türkiye

• Published in: İnönü University International Journal of Social Sciences (INIJOSS)
• Main Author: Karagöz, Kadir
• Format: Journal Article
• Language: Turkish
• Published: 29.06.2024
• ISSN: 2147-0936
• DOI: 10.54282/inijoss.1369804

According to financial theory, there is an inverse relationship between interest rate and stock returns and prices. In the framework of the Liquidity Preference Theory, the rise in interest rates causes the money to move towards higher interest rates, so demand for stock market decreases and returns fall. The behaviour of stock prices on interest rates and inflation has been investigated by various time series analysis methods. However, in this study, the subject is handled in a different approach by using the Quantile Regression (QR) method. In the study, nominal interest rate is decomposed into real interest rate and inflation components and effects on stock prices are examined for the period January 2013 - July 2023 separately for services, financial, industrial and technology sector indices. When it comes to the impact of nominal and real interest rates on returns in QR estimates, it is seen that the service and industrial sectors differ in terms of both tail and sign. The similarities between Least Squares estimates and QR estimates are striking. However, the effect of volatility in variables on the differentiation in relationships is also an issue that should be emphasized.