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CO‐MOVEMENTS OF THE PRIME RATE, CD RATE, AND THE S&P FINANCIAL STOCK INDEX
Author(s) -
Ewing Bradley T.,
Payne James E.,
Forbes Shawn M.
Publication year - 1998
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1998.tb00698.x
Subject(s) - economics , cointegration , error correction model , econometrics , stock market index , index (typography) , disequilibrium , certificate of deposit , stock (firearms) , monetary economics , capitalization weighted index , financial economics , interest rate , stock market , medicine , mechanical engineering , paleontology , horse , world wide web , computer science , ophthalmology , biology , engineering
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.