|其他題名: ||The structural breaks between the US big caps and small caps equity indices to interest rate|
|作者: ||廖皎利;Liao, Chiao-lee|
|上傳時間: ||2010-01-11 01:04:35 (UTC+8)|
Regarding the up and down of the interest rate, it shows the cost of high and low in the capital market. To a corporate, the adjustment of interest rate will be effected to its capital cost. To an individual investor, it will be effected to her/his credit financing cost. Normally, according to the capital scales, we divide the equity market as big caps, and small caps. During the interest rate moving, the cost of market capital is changing accordingly. How the interest rate moving will be effected between the big caps and small caps equities? However, this issue is not mentioned too much in previous literature.
In the international financial markets, the U.S. Fed adjust their interest rate is always the focus in the world. Even the adjustment has heavily influence to the trend of interest rates in the world. We employ the U.S equity market as the practice target. Using various time series methodologies with the consideration of structural breaks, we try to investigate the dynamic relations of short/long term in S&P500 and Rusell2000 indices when the Fed adjusted their Federal Funds Target Rate. The observation period is from Jan., 1990 to Dec., 2003 by monthly data.
The overall finding in interest rate shows that the interest rate has a long term equilibrium relation with the two indices in GH test. For the G-IRF test, the relation is negative between interest rate and S&P500 in short term and positive in long term. However, it is continuing negative between interest rate and Rusell2000. Furthermore, the relation between S&P500 and Rusell2000 in GH test is positive, and G-IRF and G-VDC also show the long term with continuing impact and higher effect.
Under the consideration of structural break, it has a long term equilibrium relations between interest rate and equity indices. It has a significant relation between the big caps and small caps indices. And investors can refer this long term and positive co-relations to do her/his investment decision.