Abstract: Objectives of this study are to examine the relationship between Interest Rate and the Stock Prices of Banks Finance and Insurance Sector Companies and to find the effect of changes in Interest Rate on Stock Returns of Banks Finance and Insurance Sector Companies. Capital markets are sensitive to number of macroeconomic factors, out of which Interest Rate is identified as a major factor by many researchers (Alam & Uddin , 2009). Colombo Stock Exchange provides secondary evidence of Banks Finance and Insurance Sector Index, which represents the dependent variable and Central Bank of Sri Lanka provides evidence of Interest Rate, which constitutes the independent variable. Researcher collected monthly data for 12 years from 2002 to 2014 for the study. Data set is proven to be normally distributed. Correlation and Linear Regression Model was used to examine relationships. Results of the study disclose a negative Correlation between Interest Rate and Banks Finance and Insurance Company Stock Prices. Further, based on coefficient of determination, 8.8% of the Banks Finance and Insurance Company Stock Returns are determined by Interest Rate. In par with original relationship between Interest Rate and Banks Finance and Insurance Index, change in Interest Rate is negatively correlated to Banks Finance and Insurance Company Stock Returns. This study would extend the literature on capital markets and provides valuable information to investors who are interested in Banks Finance and Insurance Sector.
Keywords: Interest Rate, Banks Finance and Insurance Sector Index, Colombo Stock Exchange, Stock Returns.
Title: The Importance of Interest Rate in Determining Stock Returns of Banks Finance and Insurance Companies in Sri Lanka
Author: P.R.M.R. Perera
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
Research Publish Journals
