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Effects Of Federal Funds Target Rate Changes On Stock Prices

Author

Listed:
  • E.M. Ekanayake
  • Robin Rance
  • Mihalis Halkides

Abstract

It is well-known that financial markets respond quickly to the announcements of changes in the Federal Funds target rate. This paper examines the stock price reaction of individual stocks listed under the Dow Jones Industrial Average () to Federal Funds target rate change announcements using daily stock returns over the period 1996-2007. We measure such reactions using an event-study methodology to analyze the impact of changes in the Federal Funds target rate on individual stock returns using several event windows. We group the 30 individual stocks into 8 sectors and analyze the reaction of each sector to changes in the Federal Funds target rate. Results indicate that, on average, the impact of a Federal Funds target rate decrease on stocks is positive while the reaction of a Federal Funds target rate increase is negative.

Suggested Citation

  • E.M. Ekanayake & Robin Rance & Mihalis Halkides, 2008. "Effects Of Federal Funds Target Rate Changes On Stock Prices," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 2(1), pages 13-29.
    • Handle: RePEc:ibf:ijbfre:v:2:y:2008:i:1:p:13-29
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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