Hostname: page-component-76fb5796d-22dnz Total loading time: 0 Render date: 2024-04-27T01:03:41.647Z Has data issue: false hasContentIssue false
  • English
  • Français

An Empirical Study of the Interest Rate Sensitivity of Commercial Bank Returns: A Multi-Index Approach

Published online by Cambridge University Press:  06 April 2009

Morgan J. Lynge Jr  and
J. Kenton Zumwalt
Get access Rights & Permissions [Opens in a new window]

Extract

Several recent studies of the capital asset pricing model were designed to improve the understanding of the pricing of capital assets by expanding the singlefactor market model to include macroeconomic information, industry influences and individual firm characteristics. Stone [20] has offered another means of expanding the market model. He has proposed a two-index model consisting of the traditional “equity market” index and a “debt market” index. Stone justified the model by arguing that individual equity securities exhibit varying degrees of sensitivity to interest rates and that the opportunity to invest in risky debt securities may represent an attractive alternative to riskless assets and risky equity securities. He indicated the incorporation of an index for the return on debt in the market model might improve its explanatory power for such securities as “…gold, bank, savings and loan, public utility, and similar stocks exhibiting considerable interest rate sensitivity [20, p. 710].”

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 3 , September 1980 , pp. 731 - 742
Copyright
Copyright © School of Business Administration, University of Washington 1980

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Aber, J. W.Beta Coefficients and Models of Security Return. Lexington: D. S. Heath and Company (1973).Google Scholar
[2]Alexander, G. J. “Mixed Security Testing of Alternative Portfolio Selection Models.” Journal of Financial and Quantitative Analysis, Vol. 12 (1977), pp. 817–832.CrossRefGoogle Scholar
[3]Bellmore, D. H., and Ritchie, J. C. Jr, Investments, 4th ed.Southwestern Publishing Company (1974).Google Scholar
[4]Black, F.; Jensen, M.; and Scholes, M.. “The Capital Asset Pricing Model: Some Empirical Tests.” In Studies in the Theory of Capital Markets, Jensen, M., ed. New York: Praeger (1972).Google Scholar
[5]Black, F., and Scholes, M.. “The Effects of Dividend Yield and Dividend Policy on Common Stock Prices and Returns.” In Modern Developments in Financial Management, Myers, S. C., ec. New York: Praeger (1976).Google Scholar
[6]Campanella, P.The Measurement and Use of Portfolio Systematic Risk. Lexington: D. C. Heath and Company (1972).Google Scholar
[7]Cates, D. C. “Interest Sensitivity in Banking.” The Bankers Magazine, Vol. 161 (1978), pp. 23–27.Google Scholar
[8]Cohen, K. J., and Pogue, J. A.. “An Empirical Evaluation of Alternative Portfolio Selection Models.” Journal of Business, Vol. 40 (1967), pp. 166–193.CrossRefGoogle Scholar
[9]Francis, J. C. “Intemporal Differences in Systematic Stock Price Movements.” Journal of Financial and Quantitative Analysis, Vol. 10 (1975), pp. 205–219.CrossRefGoogle Scholar
[10]Friend, I., and Blume, M.. “Measurement of Portfolio Performance under Uncertainty.” American Economic Review (1970), pp. 561–575.Google Scholar
[11]Ibbotson, R. G., and Sinquefield, R. A.. “Stocks, Bonds, Bills, and Inflation: Year-by-Year Historical Returns (1926–1974).” Journal of Business, Vol. 49 (1976), pp. 313–338.CrossRefGoogle Scholar
[12]King, B. F. “Market and Industry Factors in Stock Price Behavior.” Journal of Business, Vol. 39 (1966), pp. 139–190.CrossRefGoogle Scholar
[13]Lintner, J. “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics (1965), pp. 13–37.Google Scholar
[14]Livingston, M. “Industry Movements of Common Stocks.” Journal of Finance, Vol. 32 (1977), pp. 861–874.CrossRefGoogle Scholar
[15]Lloyd, W. P., and Shick, R. A.. “A Test of Stone's Two-Index Model of Returns.” Journal of Financial and Quantitative Analysis, Vol. 12 (1977), pp. 363–376.CrossRefGoogle Scholar
[16]Martin, J. D., and Keown, A. J.. “Interest Rate Sensitivity and Portfolio Risk.” Journal of Financial and Quantitative Analysis, Vol. 12 (1977), pp. 181–191.CrossRefGoogle Scholar
[17]Meyers, S. L. “A Re-examination of Market and Industry Factors in Stock Price Behavior.” Journal of Finance, Vol. 28 (1973), pp. 695–705.Google Scholar
[18]Mossin, J. “Equilibrium in a Capital Asset Market.” Econometrica (1966), pp. 768–783.Google Scholar
[19]Sharpe, W. F. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, Vol. 19 (1964), pp. p425–442.Google Scholar
[20]Stone, B. K. “Systematic Interest-Rate Risk in a Two-Index Model of Returns.” Journal of Financial and Quantitative Analysis, Vol. 9 (1974), pp. 709–721.CrossRefGoogle Scholar