Dissertation/Thesis Abstract

The effect of changes in Federal funds rate target on bank stock returns in the U.S.A.
by Yin, Haiyan, Ph.D., The George Washington University, 2007, 174; 3288827
Abstract (Summary)

This dissertation documents the reactions of bank stocks to monetary policy actions, which include the changes in Federal funds rate target and the FOMC meetings without adjustment in target rate. As the key policy tool used by the Federal Reserve, the changes in Federal funds rate target are considered by the market participants to convey important information of monetary policy. On the one hand, I examine the state dependency of the effect of target changes on bank stocks. On the other hand, I conduct a cross-sectional analysis to investigate if banks of different characteristics react differently to the changes in funds rate target.

I find supportive evidence that the responses of bank stocks to monetary actions are conditional on the context in which the policy change takes place. Specifically, I observe that bank stocks are more adversely affected by the target changes accompanied by a simultaneous discount rate change, which is different with existing evidence. In addition, I find that the target changes that start a new policy direction elicit more market reaction, bank stocks react more vigorously to small surprises than to big surprises, and the direction of the target change does not matter.

From the cross-sectional analysis, I find that monetary shocks have more pronounced impact on the banks with larger size, lower capital ratio, higher level of business diversification and higher level of international exposure.

The results of this study benefit investors, depositors, bank managers and policy makers.

Indexing (document details)
Advisor: Yang, Jiawen
Commitee: Handorf, William, Park, Yoon S
School: The George Washington University
Department: International Business
School Location: United States -- District of Columbia
Source: DAI-A 68/12, Dissertation Abstracts International
Subjects: Finance, Banking, Public Finance Activities, Monetary Authorities-Central Bank
Keywords: Bank stock, Federal funds rate target, Monetary policy, Stock returns, United States
Publication Number: 3288827
ISBN: 978-0-549-31761-6
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