Co-movements of the prime rate, cd rate, and the s&p financial stock index

Bradley T. Ewing, James E. Payne, Shawn M. Forbes

Research output: Contribution to journalArticle

16 Scopus citations

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 languageEnglish
Pages (from-to)469-482
Number of pages14
JournalJournal of Financial Research
Volume21
Issue number4
DOIs
StatePublished - Dec 1998

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