Advanced Search
MyIDEAS: Login

Asymmetric Effects of Interest Rate Changes on Stock Prices

Contents:

Author Info

  • Lobo, Bento J
Registered author(s):

    Abstract

    This study examines the stock price adjustment process around announcements of changes in the federal funds rate target in the 1990s using an asymmetric autoregressive exponential GARCH model (ASAR-EGARCH). We find that target change announcements convey new information to the stock market. Risk aversion increases before the announcement of a rate change, and especially before the announcement of a joint target and discount rate change. The volatility estimates suggest that such joint rate changes send a clearer signal to the stock market about monetary policy objectives relative to unilateral target changes. Our findings are consistent with overreaction in the wake of bad news (rate hikes), and point to a shift in volatility from before to after the rate change announcement since the adoption of the immediate disclosure policy of the Federal Open Market Committee in February 1994. Copyright 2000 by MIT Press.

    Download Info

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Bibliographic Info

    Article provided by Eastern Finance Association in its journal The Financial Review.

    Volume (Year): 35 (2000)
    Issue (Month): 3 (August)
    Pages: 125-43

    as in new window
    Handle: RePEc:bla:finrev:v:35:y:2000:i:3:p:125-43

    Contact details of provider:
    Web page: http://www.easternfinance.org/
    More information through EDIRC

    Order Information:
    Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Tsai, Chun-Li, 2014. "The effects of monetary policy on stock returns: Financing constraints and “informative” and “uninformative” FOMC statements," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 273-290.
    2. Chulia-Soler, H. & Martens, M.P.E. & van Dijk, D.J.C., 2007. "The Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities, and Correlations," ERIM Report Series Research in Management ERS-2007-066-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    3. Gropp, Reint Eberhard & Kadareja, Arjan, 2007. "Stale information, shocks and volatility," ZEW Discussion Papers 07-012, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Vithessonthi, Chaiporn & Techarongrojwong, Yaowaluk, 2013. "Do monetary policy announcements affect stock prices in emerging market countries? The case of Thailand," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 446-469.
    5. Liu, Tengdong & Hammoudeh, Shawkat & Thompson, Mark A., 2013. "A momentum threshold model of stock prices and country risk ratings: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 99-112.
    6. Farka, Mira, 2009. "The effect of monetary policy shocks on stock prices accounting for endogeneity and omitted variable biases," Review of Financial Economics, Elsevier, vol. 18(1), pages 47-55, January.
    7. Mansor, Ibrahim H., 2011. "Financial Market Risk and Gold Investment in an Emerging Market: The Case of Malaysia," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 79-89, December.
    8. Sasidharan, Anand, 2009. "Stock Market's Reaction to Monetary Policy Announcements in India," MPRA Paper 24190, University Library of Munich, Germany, revised Jul 2010.
    9. Aliyu, Shehu Usman Rano, 2011. "Reactions of stock market to monetary policy shocks during the global financial crisis: the Nigerian case," MPRA Paper 35581, University Library of Munich, Germany, revised 28 Dec 2011.
    10. Vithessonthi, Chaiporn & Techarongrojwong, Yaowaluk, 2012. "The impact of monetary policy decisions on stock returns: Evidence from Thailand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 487-507.
    11. Mansor H. Ibrahim, 2012. "Financial market risk and gold investment in an emerging market: the case of Malaysia," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 5(1), pages 25-34, April.
    12. Asger Lunde & Allan Zebedee, 2009. "Intraday volatility responses to monetary policy events," Financial Markets and Portfolio Management, Springer, vol. 23(4), pages 383-399, December.
    13. Laopodis, Nikiforos T., 2013. "Monetary policy and stock market dynamics across monetary regimes," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 381-406.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bla:finrev:v:35:y:2000:i:3:p:125-43. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.