The paper examines the relationship between interest rates and stock market returns
for seven African countries. Cointegration tests indicate a long-run relationship
between interest rate and stock prices for Kenya and South Africa. The short-run
dynamic Vector Error Correction Model Granger causality shows unidirectional causality
from stock returns to interest rate in Kenya and bidirectional causality in South
Africa. Responses to shocks from impulse response functions have long lasting
effects in Egypt, Ghana, Nigeria and Tunisia and are short-lived in Mauritius.