The relationships between stock market capitalization rate and interest rate: Evidence from Jordan

The paper examines the effect of interest rates on the stock market capitalization rate in AmmanStock Exchange (ASE) over the period 1999-2008. Based on the multiple linear regression modeland simple regression model, the time series analysis revealed that there is significant and positiverelationship between government prevailing interest rate (R) and stock market capitalization rate(S). The study shows that Government development stock rate (D) exerts negative influence onstock market capitalization rate (S), also it finds a significant and negative relationship betweengovernment prevailing interest rate (R) and Government development stock rate (D). Finally, thisstudy suggests the importance of government intervention to encourage investment in ASE byreducing rate of personal taxation thus, granting incentive for creation of wealth, controllinginterest rate so as to aid the growth of the stock market and improving the regulatory environmentand decreasing red tape.