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Bank characteristics and stock reactions to federal funds rate target changes

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  • Haiyan Yin
  • Yang

Abstract

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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  • Haiyan Yin & Yang, 2013. "Bank characteristics and stock reactions to federal funds rate target changes," Applied Financial Economics, Taylor & Francis Journals, vol. 23(23), pages 1755-1764, December.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:23:p:1755-1764
    DOI: 10.1080/09603107.2013.851770
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    Cited by:

    1. Ricci, Ornella, 2015. "The impact of monetary policy announcements on the stock price of large European banks during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 245-255.
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    3. Kakhkharov, Jakhongir & Bianchi, Robert J., 2022. "COVID-19 and policy responses: Early evidence in banks and FinTech stocks," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

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