Co-movements of the Prime Rate, CD Rate, and the S&P Financial Stock Index
AbstractWe examine the relation among the prime lending rate, certificate of deposit rate, and the S&P Financial Stock Index using cointegration and error correction modeling techniques. We find that these three financial time series share a long-run cointegrating relation. Subsequent vector autoregressive error correction results imply that the movement of these stock prices toward eliminating disequilibrium is about 1 percent within the first month. Impulse response functions indicate that changes in the deposit rate have a larger effect on changes in the price index of financial service sector stocks than do changes in the lending rate.Winter 1998.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 21 (1998)
Issue (Month): 4 (Winter)
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- Su, Chi Wei & Chang, Hsu Ling, 2010. "Asymmetric Adjustment in the Lending-Deposit Rate Spread: Evidence from Eastern European Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 165-175, July.
- Tsai, Chun-Li, 2011. "The reaction of stock returns to unexpected increases in the federal funds rate target," Journal of Economics and Business, Elsevier, vol. 63(2), pages 121-138, March.
- Bradley Ewing & Shawn Forbes & James Payne, 2003. "The effects of macroeconomic shocks on sector-specific returns," Applied Economics, Taylor & Francis Journals, vol. 35(2), pages 201-207.
- Hsu-Ling Chang & Chi-Wei Su, 2010. "The Lending-Deposit Rate Relationship in Eastern European Countries: Evidence from the Rank Test for Non-linear Cointegration," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 534-544, December.
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