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Conditional interest rate risk and the cross‐section of excess stock returns

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  • Victoria Atanasov

Abstract

Differences in excess stock returns can be rationalized by their sensitivities to conditional interest rate risk. Value stocks are particularly sensitive to upside movements in interest rate growth, while growth stocks react strongly to downside movements in interest rate growth. Consistent with the basic asset pricing theory, the upside interest rate risk commands a negative premium which is higher than the premium associated with the downside interest rate risk. Upside beta pertains its explanatory power after controlling for exposure to regular unconditional interest rate and various sources of financial and conditional macroeconomic risk.

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  • Victoria Atanasov, 2016. "Conditional interest rate risk and the cross‐section of excess stock returns," Review of Financial Economics, John Wiley & Sons, vol. 30(1), pages 23-32, September.
    • Handle: RePEc:wly:revfec:v:30:y:2016:i:1:p:23-32
    DOI: 10.1016/j.rfe.2016.02.003
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