Asymmetric Effects of Interest Rate Changes on Stock Prices

Financial Review - Tập 35 Số 3 - Trang 125-144 - 2000
Bento J. Lobo1
1University of Louisiana

Tóm tắt

AbstractThis study examines the stock price adjustment process around announcements of changes in the federal funds rate target in the 1990s using an asymmetric autoregressive exponential GARCH model (ASAR‐EGARCH). We find that target change announcements convey new information to the stock market. Risk aversion increases before the announcement of a rate change, and especially before the announcement of a joint target and discount rate change. The volatility estimates suggest that such joint rate changes send a clearer signal to the stock market about monetary policy objectives relative to unilateral target changes. Our findings are consistent with overreaction in the wake of bad news (rate hikes), and point to a shift in volatility from before to after the rate change announcement since the adoption of the immediate disclosure policy of the Federal Open Market Committee in February 1994.

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Thông tin xuất bản

Financial Review

Tập 35 Số 3

125-144

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