Returns and Interest Rate: A Nonlinear Relationship in the Bogota Stock Market
La serie Borradores de Economía es una publicación de la Subgerencia de Estudios Económicos del Banco de la República. Los trabajos son de carácter provisional, las opiniones y posibles errores son responsabilidad exclusiva del autor y sus contenidos no comprometen al Banco de la República ni a su Junta Directiva.
This work presents some evidence of the nonlinear and inverse relationship between the share prices on the Bogotá stock market and the interest rate as measured by the interbank loan interest rate, which is to some extent affected by monetary policy. The model captures the stylised fact on this market of high dependence of returns in short periods of time. These findings do not support any efficiency on the main stock market in Colombia. Evidence of a non constant equity premium is also found. The work uses daily data from January 1994 up to February 2000.
