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Market efficiency, discount-rate changes, and stock returns: A long-term perspective

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  • Laurie Prather
  • William Bertin

Abstract

This paper examines the market efficiency issue by analyzing stock returns surrounding Fed announcements of discount-rate changes. Based on an analysis ofex post returns over a 58-year period, the results provide evidence of long-term market efficiency. Consistent with recent literature, the findings also reveal some predictability in return patterns where an active trading strategy based on directional reversals in the pattern of discount rate changes outperforms a passive buy-and-hold approach. The results indicate that the proposed active trading produces substantially higher risk-adjusted returns than the buy-and-hold strategy. Copyright Springer 1999

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  • Laurie Prather & William Bertin, 1999. "Market efficiency, discount-rate changes, and stock returns: A long-term perspective," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(1), pages 56-63, March.
    • Handle: RePEc:spr:jecfin:v:23:y:1999:i:1:p:56-63
    DOI: 10.1007/BF02752687
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    References listed on IDEAS

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    1. Cook, Timothy & Hahn, Thomas, 1988. "The Information Content of Discount Rate Announcements and Their Effect on Market Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 167-180, May.
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    7. Waud, Roger N, 1970. "Public Interpretation of Federal Reserve Discount Rate Changes: Evidence on the 'Announcement Effect'," Econometrica, Econometric Society, vol. 38(2), pages 231-250, March.
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