Do changes in the discount rate and Fed funds rate affect financial market returns?
The effect of changes in the discount rate and the federal funds rate on the stock market and the government bond market has been investigated. The results showed no significant announcement effect in any of the major financial markets. This has been attributed to regulatory lags and anticipation of the announcement by the markets. However, the treasury bill market showed a minor reaction more than either the treasury bond or the stock market. The results also indicated that all financial markets show similar reactions to both discount rate and federal rate changes.
Publication Name: Managerial Finance
Expectations of Real Interest Rates and Aggregate Consumation: Empirical Tests
Consumation in asset pricing models is extended by including models with constant absolute and constant relative risk aversion. Changes in expected real returns are observed. Stronger evidence is obtained under absolute risk aversion. Consumption betas are important.
Publication Name: Journal of Financial and Quantitative Analysis
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