Monetary surprises and bank equity valuation with prolonged low interest rates

Qianying Chen, Mitsuru Katagiri and Jay Surti

Finance Research Letters, 2022, vol. 47, issue PA

Abstract: Does the ongoing, prolonged low interest rate environment affect how monetary policy surprises impact bank valuation? This paper answers this question by analyzing cross-country behavior of bank equity prices. Our results show that monetary easing surprises, which usually elicit a positive response from bank equity prices, tend to instead induce a negative response during periods of prolonged low interest rates, particularly for banks which rely on domestic deposits. This result implies that equity markets interpret a further interest rate cut in a prolonged low interest rate environment as negative information about future bank profitability.

Keywords: Monetary policy; Bank equity price; Low interest rate environment (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005468

DOI: 10.1016/j.frl.2021.102608

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