Abstract
We examine the relation among the prime lending rate, certificate of deposit rate, and the S&P Financial Stock Index using cointegration and error correction modeling techniques. We find that these three financial time series share a long-run cointegrating relation. Subsequent vector autoregressive error correction results imply that the movement of these stock prices toward eliminating disequilibrium is about 1 percent within the first month. Impulse response functions indicate that changes in the deposit rate have a larger effect on changes in the price index of financial service sector stocks than do changes in the lending rate.
Original language | English |
---|---|
Pages (from-to) | 469-482 |
Number of pages | 14 |
Journal | Journal of Financial Research |
Volume | 21 |
Issue number | 4 |
DOIs | |
State | Published - Dec 1998 |