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Monetary surprises and bank equity valuation with prolonged low interest rates

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  • Chen, Qianying
  • Katagiri, Mitsuru
  • Surti, Jay

Abstract

Does the ongoing, prolonged low interest rate environment affect how monetary policy surprises impact bank valuation? This paper answers this question by analyzing cross-country behavior of bank equity prices. Our results show that monetary easing surprises, which usually elicit a positive response from bank equity prices, tend to instead induce a negative response during periods of prolonged low interest rates, particularly for banks which rely on domestic deposits. This result implies that equity markets interpret a further interest rate cut in a prolonged low interest rate environment as negative information about future bank profitability.

Suggested Citation

  • Chen, Qianying & Katagiri, Mitsuru & Surti, Jay, 2022. "Monetary surprises and bank equity valuation with prolonged low interest rates," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005468
    DOI: 10.1016/j.frl.2021.102608
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    References listed on IDEAS

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    Cited by:

    1. Fernando García Martínez & Juan Domínguez Jiménez & Ricardo Queralt Sánchez de las Matas, 2024. "Reevaluating Bank Price-to-Book Ratios: An In-Depth Analysis of Equity Components across Economic Cycles," JRFM, MDPI, vol. 17(8), pages 1-21, August.
    2. MBelen Salas & Prosper Lamothe & Enrique Delgado & Angel L. Fernández-Miguélez & Lucia Valcarce, 2024. "Determinants of Nonperforming Loans: A Global Data Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 64(5), pages 2695-2716, November.

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    More about this item

    Keywords

    Monetary policy; Bank equity price; Low interest rate environment;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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