Effect of Federal Reserve Policies on Bank Equity Returns

Madura, Jeff; Schnusenberg, Oliver

doi:10.1111/j.1475-6803.2000.tb00754.x

Cited by 33 publications

(42 citation statements)

References 26 publications

(29 reference statements)

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“…6 This was followed by six more increases in Fed Funds, with the last one occurring in February 1995. Madura and Schnusenberg (2000) find that the share price response of banks can vary with the direction of the interest rate adjustment by the Fed. Furthermore, the thirteen consecutive reductions in the Federal Funds rate occurred over a period of weak economic conditions, whereas the period of seven consecutive increases in the Federal Funds rate occurred over a period of strong economic conditions, which could also affect bank equity returns.…”

Section: Resultsmentioning

confidence: 97%

Sources of Bank Interest Rate Risk

Fraser

Madura

Weigand

2002

The Financial Review

Self Cite

100

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We investigate bank stocks' sensitivity to changes in interest rates and the factors affecting this sensitivity. We focus on whether the exposure of commercial banks to interest rate risk is conditioned on certain balance sheet and income statement ratios. We find a significantly negative relation between bank stock returns and changes in interest rates over the period 1991-1996. We also find that bank characteristics measured from basic financial statement information explain bank stocks' sensitivity to interest rate changes. These results suggest that bank managers, analysts, and regulators can use this information to assess the relative risk exposure of banks.

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Section: Resultsmentioning

confidence: 97%

Sources of Bank Interest Rate Risk

Fraser

Madura

Weigand

2002

The Financial Review

Self Cite

100

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“…Bonds returns, on the other hand, are affected by the term spread in restrictive policy periods and by the dividend yield during expansive periods. Madura and Schnusenberg (2000) report that bank equity returns rise significantly in response to Fed easing in both the pre-1979 and post-1987 funds rate targeting regimes, but do not respond significantly to Fed tightening. Therefore, how real estate returns react to positive versus negative inflationary changes (both expected and unexpected) in the presence of tightening and easing monetary policy actions, may be enlightening, not only as a study of market efficiency and information processing, but may also be at the crux of understanding the oft-noted anomalous relationship between inflation and securitized real estate returns.…”

Section: Introductionmentioning

confidence: 94%

The Asymmetric Response of Equity REIT Returns to Inflation

Simpson¹,

Ramchander

Webb

2007

J Real Estate Finan Econ

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This paper posits that the failure of past studies to document a positive relationship between REIT (Real Estate Investment Trust) returns and inflation is an artifact of the empirical framework that has predominated in these studies. Applying a pooled estimation methodology to an expansive data set containing 195 publicly traded equity REITs for the period 1981–2002, the study documents a strong asymmetry in the response of equity REIT returns to inflation. Specifically, when expected and unexpected inflation are separated into positive and negative changes, results indicate that equity REIT returns rise in response to both increases and decreases in inflation. The evidence, which is partly contingent on the prevailing monetary policy environment, carries important policy implications for portfolio management and provides insights into the observed anomalous relationship between REITs and inflation. Copyright Springer Science+Business Media, LLC 2007REITs, Inflation, Asymmetry, Pooled estimation,

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“…Madura and Schnusenberg (2000) find that stock returns for large banks (as measured by asset size) and banks with low capital ratios are more sensitive to monetary policy changes. The purpose of this article is to shed new light on how specific bank characteristics affect the responsiveness of bank stock returns to changes in the federal funds rate target.…”

Section: Introductionmentioning

confidence: 97%

“…23, 1755-1764, http://dx.doi.org/10.1080/09603107.2013 more sensitive to target changes than stocks of other industries. Madura and Schnusenberg (2000) test how monetary policy changes affect bank stock returns over . They find a strong inverse relationship between the Fed interest rate changes (the federal funds rate and the discount rate) and bank stock returns.…”

Section: Introductionmentioning

confidence: 99%

Bank characteristics and stock reactions to federal funds rate target changes

Yin

Yang

2013

Applied Financial Economics

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This study investigates how bank characteristics affect bank stock reactions to changes in the federal funds rate target. Using a data set of all publicly listed banks of the United States from October 1988 through December 2007, we find that (1) the effect of changes in the federal funds rate target is more pronounced on large banks than on small banks; (2) banks that rely more on nondeposit funding sources are more responsive to such changes; (3) banks with higher capital ratios are less sensitive to unexpected target changes, but when the ratio increases to a certain level, the marginal effect diminishes. We observe that business activity mix does not matter to banks' sensitivity to monetary shocks. This study is among the first to investigate how bank stock sensitivity to monetary shocks is conditional on various bank characteristics.

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Effect of Federal Reserve Policies on Bank Equity Returns

Cited by 33 publications

References 26 publications

Sources of Bank Interest Rate Risk

Sources of Bank Interest Rate Risk

The Asymmetric Response of Equity REIT Returns to Inflation

Bank characteristics and stock reactions to federal funds rate target changes

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