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Relationship Between Interest Rate And Bank Common Stock Return: Evidence From The Top 10 United States Banks And Financial Sector Index, Hieu Trung Tran
Relationship Between Interest Rate And Bank Common Stock Return: Evidence From The Top 10 United States Banks And Financial Sector Index, Hieu Trung Tran
Honors Projects in Finance
This research paper investigates the effect of changes in long-term interest rates on the returns of the top 10 US banks included in the Financial Sector Index. There are three main parts of this paper.
The first part uses the Augmented Dickey-Fuller (ADF) test to test the “Random Walk” of banks’ common stock returns. Based on the test’s results, returns of banks’ common stock do not solely follow the “Random Walk”.
In the second part, the Two-Factor Arbitrage Pricing Theory is employed to test the effect of changes in long-term interest rate on the return of banks’ common stocks. The …