Commercial Paper Rates and Stock Market Excess Returns
University of Maryland, Eastern Shore; University of Maryland, College Park
September 17, 2012
Journal of Finance and Investment Analysis, (2013), Forthcoming
This study investigates how commercial paper rates respond to the innovations in stock market risk premiums. The unrestricted vector autoregression (VAR) analysis of monthly data from 1997:1 to 2012:M6 shows that the changes in the one-, two-, and three-month non-financial and financial commercial paper rates positively respond to the innovations in the excess returns on the CRSP value weighted index. The response is especially strong during the first few months following shocks to stock market risk premiums. The Granger-causality test results show the changes in commercial paper rates can be predicted by the excess returns on the CRSP value weighted index. The findings from this study provide evidence that there is a link between equity market and commercial paper market.
Number of Pages in PDF File: 12
Keywords: stock market excess returns, commercial paper rates, VAR
JEL Classification: G20, G12, G14Accepted Paper Series
Date posted: September 18, 2012 ; Last revised: December 30, 2012
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