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

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  • Atanasov, Victoria

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.

Suggested Citation

  • Atanasov, Victoria, 2016. "Conditional interest rate risk and the cross-section of excess stock returns," Review of Financial Economics, Elsevier, vol. 30(C), pages 23-32.
  • Handle: RePEc:eee:revfin:v:30:y:2016:i:c:p:23-32
    DOI: 10.1016/j.rfe.2016.02.003
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    More about this item

    Keywords

    Stock returns; Interest rates; Conditional risk;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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