Effect of Federal Reserve Policies on Bank Equity Returns

Posted: 26 Jan 2000

See all articles by Jeff Madura

Jeff Madura

Florida Atlantic University - College of Business

Oliver Schnusenberg

University of North Florida - Department of Accounting and Finance

Abstract

We investigate the reaction of bank equity returns to changes in the relevant Federal Reserve (Fed) policy tool, which is the federal funds rate during periods of interest rate targeting and the discount rate during periods of reserves targeting. Three distinct policy periods from 1974 to 1996 are investigated. We find that bank equity returns are inversely related to changes in the relevant Fed policy tool and that the degree of sensitivity of bank equity returns is conditioned on the direction of the change in the Fed policy tool. Also, we find that values of larger banks and commercial banks with low capital ratios are more exposed to changes in the relevant Fed policy tool.

JEL Classification: G12, G14, G21

Suggested Citation

Madura, Jeff and Schnusenberg, Oliver, Effect of Federal Reserve Policies on Bank Equity Returns. Available at SSRN: https://ssrn.com/abstract=191556

Jeff Madura (Contact Author)

Florida Atlantic University - College of Business ( email )

University Tower
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Oliver Schnusenberg

University of North Florida - Department of Accounting and Finance ( email )

College of Business Administration
4567 St. Johns Bluff Road, South
Jacksonville, FL 32224-2675
United States

HOME PAGE: http://www.unf.edu/~oschnuse

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