Time Series Analysis of the Impact of Real Interest Rates on Stock Market Activity and Liquidity in Egypt: Co-integration and Error Correction Model Approach

Abstract:     
Since 1991 Egypt has witnessed major and radical changes in its economic climate as a result of the government's adoption of a program of economic reform aimed at increasing the growth rate of the economy. Arguably, this objective can be assisted through creating a strong stock market. This paper focuses on examining the impact of real interest rates as a key factor in the program on the performance of the Egyptian stock market, both in terms of market activity and liquidity. By applying Engle and Granger's two-stage procedure, results from co-integration analysis through error correction mechanisms (ECM) indicate significant long-run and short-run relationships between the variables, implying that real interest rates have an impact upon stock market performance.

Number of Pages in PDF File: 16

Keywords: Real interest rates, Stock market, Egypt, Co-integration, Error correction mechanism

JEL Classification: C12, C22, E44, G10, O23

Accepted Paper Series