Investor Behavior and Flow-through Capability in the US Stock Market

Cano, Carlos I. Aymerich; Jareño, Francisco; Tolentino, Marta

doi:10.3389/fpsyg.2016.00668

Cited by 6 publications

(19 citation statements)

References 20 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Specifically, Asikoglu and Johson (1986, 1990) and Asikoglu and Ercan (1992) analyze the relationship between inflation and stock returns and conclude that FTC is negatively related to the company's stock duration. Furthermore, Jareño (2005) and Jareño and Navarro (2010) confirm for the Spanish stock market and Cano et al. (2016) confirm for the US stock market that there are significant differences in FTC at the sector level and that sectors with greater FTC are less sensitive to interest rate risk.…”

Section: Introductionmentioning

confidence: 71%

“…Financial risk management is an important issue (Campbell, 2006; Cano et al., 2016; and González et al., 2016, 2017); thus, an estimation of the flow-through capability (FTC) could be relevant for investors and portfolio managers. According to Estep and Hanson (1980), Asikoglu and Ercan (1992), Cano and Jareño (2015), and Jareño and Navarro (2010), among others, FTC is defined as a firm's ability to transmit inflation shocks to the prices of its products and services.…”

Section: Introductionmentioning

confidence: 99%

“…Thus, the main objective of this study is to determine whether the FTC of US companies (Cano et al., 2016) is related to the nominal interest rate duration of companies' stock returns 1…”

Section: Introductionmentioning

confidence: 99%

“…This research contributes to the literature by confirming the existence of a negative relationship between the FTC of US sectors and the sensitivity of these sectors to changes in nominal interest rates (interest rate sensitivity, IRS) during the sample period 2000–2009. We start from the North American Industry Classification System (NAICS) sector classification, which Cano et al. (2016) modified.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Alternative estimates of the well-known negative relationship between the US interest rate risk and the flow-through capability

Jareño

Tolentino

Cano

2019

Heliyon

Self Cite

View full text Add to dashboard Cite

This paper estimates US industries' ability to transmit inflation shocks to the prices of their products and services (flow-through capability, FTC) and the stock duration (interest rate sensitivity) at the sector level. Then, considering the significant differences in ability among industries, we analyze the relationship between FTC and interest rate sensitivity using two alternative methodologies (in both cases). Finally, we find a significant negative relationship between FTC and stock duration, as suggested by previous literature. Thus, industries with high FTC, such as S7 (Finance and Real Estate), S9 (Manufacturing), S11 (Transportation and Warehousing) and S12 (Utilities), may be less sensitive (than expected) to changes in nominal interest rates. In contrast, sectors such as S4 (Retail Trade), S8 (Information) and S10 (Professional and Administrative Services) (with high IRS) may be more sensitive (than expected) to changes in nominal interest rates, indicating a weak ability to transmit inflation shocks to the prices of their products and services.

show abstract

Section: Introductionmentioning

confidence: 71%

Section: Introductionmentioning

confidence: 99%

“…Thus, the main objective of this study is to determine whether the FTC of US companies (Cano et al., 2016) is related to the nominal interest rate duration of companies' stock returns 1…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Alternative estimates of the well-known negative relationship between the US interest rate risk and the flow-through capability

Jareño

Tolentino

Cano

2019

Heliyon

Self Cite

View full text Add to dashboard Cite

show abstract

“…The relationship between inflation and stock return would also depend on the capability of companies to transfer the inflation shock to the prices of products and services. This theory is known as the 'Flow-Through' hypothesis (Estep and Hanson 1980;Asikoglu and Ercan 1992;Cano, Jareño, and Tolentino 2016). A recent study by Antonakakis, Gupta, and Tiwari (2017) examined the dynamic conditional correlation of stock prices and inflation for the US economy and found the correlation evolves over time and is not constant.…”

Section: Literature Reviewmentioning

confidence: 99%

Short-term market reaction to inflation announcement: evidence from the Indian stock market

Singh

Balasubramanian

2020

Macroeconomics and Finance in Emerging Market Economies

View full text Add to dashboard Cite

This study investigates the reaction of stock returns to inflation announcements during the inflation switching regime from 2012 to 2018. In this paper, we have compared the broader market index NIFTY 500 vs. narrower market index NIFTY 50, and closing price vs. opening price. The study also checks if the state of the economy influences the stock market reaction. The finding of the study suggests that there are considerable abnormal returns. From a market efficiency perspective, we observe markets have become more efficient post the IT regime for both the stock market indices and also for both sets of prices.

show abstract

Impact of changes in the level, slope and curvature of interest rates on U.S. sector returns: an asymmetric nonlinear cointegration approach

Jareño

Tolentino

González

et al. 2019

Economic Research-Ekonomska Istraživanja

Self Cite

View full text Add to dashboard Cite

This article examines the sensitivity of U.S. sector equity indices to changes in nominal interest rates and in the corresponding principal components (level, slope and curvature of the U.S. yield curve) over the period 1990-2013 using factor models and a nonlinear autoregressive distributed lag (N.A.R.D.L.) approach. Furthermore, for robustness, this research analyses whether the sensitivity of sector stock returns is different depending on the stage of the economy, splitting the whole sample period into two sub-periods: pre-crisis and subprime crisis. In general, the empirical results confirm a substantial exposure to interest rate risk that depends on the model used and the period analysed. In addition, considering the three principal components of the U.S. yield curve, the sensitivity to changes in these components tends to be stronger during the subprime crisis sub-period. Finally, in the N.A.R.D.L. context, about 50% of sectors show long-run relations between sector stock returns and the explanatory factors, mainly during the whole sample and the pre-crisis sub-period. Nevertheless, short-run responses may be mostly shown in the subprime crisis sub-period. Therefore, our results evidence that nominal interest rates and its three components would have asymmetric effects on the U.S. stock returns at sector level, depending on the stage of the economy.

show abstract

Investor Behavior and Flow-through Capability in the US Stock Market

Cited by 6 publications

References 20 publications

Alternative estimates of the well-known negative relationship between the US interest rate risk and the flow-through capability

Alternative estimates of the well-known negative relationship between the US interest rate risk and the flow-through capability

Short-term market reaction to inflation announcement: evidence from the Indian stock market

Impact of changes in the level, slope and curvature of interest rates on U.S. sector returns: an asymmetric nonlinear cointegration approach

Contact Info

Product

Resources

About