Interest Rate Fluctuations and the UK Financial Services Industry

Applied Financial Economics Letters, Vol. 3, pp. 343-347, 2007

Posted: 17 Nov 2006 Last revised: 7 Jul 2009

See all articles by Panayiotis G. Artikis

Panayiotis G. Artikis

University of Piraeus - Department of Business Administration

Elena Kalotychou

Cass Business School, City, University of London

Sotiris K. Staikouras

City University - Cass Business School; ALBA Graduate Business School

Abstract

The paper explores the relationship between short-term interest rates and the equity returns of the UK financial services industry. Based on the arbitrage pricing theory, the present study seeks to answer the sensitivity and pricing questions. The former is tested with a linear two-index model attempting to identify any interest rate risk exposure of these stock returns. The latter, however, is examined using a nonlinear multivariate analysis based on the SURE model by imposing cross- and within-equation constraints on the estimated parameters. The econometric analysis unveils a significant negative interest rate effect and the existence of a risk premium incorporated in the expected returns of portfolios consisting of these stocks.

Keywords: Financial firms, Equity Returns, Interest Rate Surprises

JEL Classification: C22, G12, G20

Suggested Citation

Artikis, Panayiotis G. and Kalotychou, Elena and Staikouras, Sotiris, Interest Rate Fluctuations and the UK Financial Services Industry. Applied Financial Economics Letters, Vol. 3, pp. 343-347, 2007, Available at SSRN: https://ssrn.com/abstract=945442

Panayiotis G. Artikis

University of Piraeus - Department of Business Administration ( email )

M. Karaoli & A. Dimitriou 80 Street
Piraeus, Attiki 18534
Greece
+302104142200 (Phone)

Elena Kalotychou

Cass Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain

Sotiris Staikouras (Contact Author)

City University - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
959
PlumX Metrics