The Impact of Interest Rates and Treasury Bill Yields on Stock Prices in Zambia

Abstract

The paper analyzes the short-run and long-run effects of interest rates and Treasury bill rates on stock prices on the Lusaka Securities Exchange (LuSE) using semi-annual data between January 2006 and January 2022. ARDL model is used after we proved that there is no ARCH effect on the dependent variable (LNLASI). The findings show that deposit interest rates had a significant but weak negative impact on stock prices in the short run but had a positive impact on the stock prices in the long run, lending interest rates on the other hand had an insignificant positive impact on stock prices but a negative impact on stock prices in the long run. Treasury bill yields were found to have a negative significant impact on stock prices but had an insignificant negative impact on stock prices in the long run. Moreover, we found co-integration between among the three variables which means that there is a long run equilibrium relationship. As a result, the study concludes that, in the long-run, interest rates and Treasury bill rates have a combined effect on stock prices.