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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
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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

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References

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