Keywords: Stock Prices, Interest Rates, Granger Causality, Finance

Most of the previous research concludes that there is a negative effect of interest rate changes on stock prices. This implies that changes in interest rates will cause stock market prices to change. On the other hand, growth in stock market prices may lead to growth in economic activities (GDP) through increasing business investment and consumption, which in turn may lead to a restrictive monetary policy and higher interest rates. This suggests that a change in stock market prices will cause interest rates to change. Hence, there is an assumption that a causal relationship exists between stock market prices and interest rates. It seems desirable to check the validity of this assumption based on a formal test. The objective of this study is to examine the direction and the strength of the link between interest rates and stock market prices in a Granger Causality sense.