Interest Rate Changes and Investors’ Activity: Evidence from Poland During the Pandemic Period

During the COVID-19 pandemic period in Poland, interest rates have been substantially reduced by National Bank of Poland (NBP). Within three months, the WIBOR 1Y rate fell from 1.84% (27 February 2020) to 0.3% (4 June 2020). The consequences of the Central Bank decision have been crucial for investors, as a one-time increase (decrease) in rates decreases (increases) the market value of assets. Changes in the term structure of interest rates unknown a priori to investors arise particularly often in economic downturns. According to the literature, investors have a greater appetite for risk-taking when interest rates are low, and it is not confined to institutions. Generally speaking, low-interest rates lead to significantly higher allocations to risky assets among diverse groups of investors. In this context, the goal of this study is to investigate whether shifts in interest rates affected investors’ activity on the Warsaw Stock Exchange (WSE) within the pandemic period in 2020. Daily trading volume is utilized as a measure of investors’ activity. The event window method is used to assess whether the mean results of daily trading volume during the pre-event, event and post-event time windows significantly differ between each other in the case of all event windows. A particular event window includes consecutive considerable declines in interest rates. Moreover, robustness tests are conducted. The empirical findings confirm that interest rate cuts during the pandemic period increased investors’ activity on the Polish stock market.