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State Dependency Of Bank Stock Reaction To Federal Funds Rate Target Changes

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  • Haiyan Yin
  • Jiawen Yang
  • William C. Handorf

Abstract

We investigate the effects of changes in the federal funds target rate on bank stock returns through an event‐study analysis. We examine the state dependency of such effects and focus on the surprise elements of policy changes derived from the federal funds futures market. Although we confirm an inverse relation between bank stock returns and changes in the federal funds target rate previously supported in the literature, we find that bank stock returns only respond to surprise or unexpected changes in the federal funds target rate. We also find that such responses are conditional on the context in which policy changes take place.

Suggested Citation

  • Haiyan Yin & Jiawen Yang & William C. Handorf, 2010. "State Dependency Of Bank Stock Reaction To Federal Funds Rate Target Changes," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(3), pages 289-315, September.
    • Handle: RePEc:bla:jfnres:v:33:y:2010:i:3:p:289-315
    DOI: 10.1111/j.1475-6803.2010.01272.x
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    References listed on IDEAS

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    Cited by:

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    2. Aref Mahdavi Ardekani & Isabelle Distinguin & Amine Tarazi, 2019. "Interbank network characteristics, monetary policy "News" and sensitivity of bank stock returns," Working Papers hal-02384533, HAL.
    3. Salvatore Perdichizzi, 2017. "The impact of ECBs conventional and unconventional monetary policies on European banking indexes returns," DISCE - Working Papers del Dipartimento di Economia e Finanza def059, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    4. Kakhkharov, Jakhongir & Bianchi, Robert J., 2022. "COVID-19 and policy responses: Early evidence in banks and FinTech stocks," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    5. Ricci, Ornella, 2015. "The impact of monetary policy announcements on the stock price of large European banks during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 245-255.
    6. Kamil Saba & Janusz Kudła, 2014. "The impact of NBP’s interest rate changes on the changes and volatility of WIG20," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 37.

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