Prime Rate Changes: Is There an Advantage in Being First?

This article analyzes the impact of prime rate changes on the stock prices of prime rate change initiating banks relative to noninitiating banks. The prime rate as a "sticky price" is analyzed, and the potential directions (and sizes) of information effects are discussed and empirically ex...

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Bibliographic Details
Published in:The Journal of business (Chicago, Ill.) Ill.), 1993-01, Vol.66 (1), p.69-92
Main Authors: Nabar, Prafulla G., Park, Sang Yong, Saunders, Anthony
Format: Article
Language:English
Subjects:
Advantages
Bank loans
Bank markets
Bank rates
Bank stocks
Banks
Changes
Cost efficiency
Customers
Federal Reserve Bank
Financial performance
Hypotheses
Impact analysis
Interest rates
Loan rates
Menu costs
Prime rate
Rates of return
Statistical analysis
Stock prices
Studies
Citations: Items that cite this one
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Description
Summary:This article analyzes the impact of prime rate changes on the stock prices of prime rate change initiating banks relative to noninitiating banks. The prime rate as a "sticky price" is analyzed, and the potential directions (and sizes) of information effects are discussed and empirically examined. It is found that prime rate increases generally convey bad news about the initiating banks. Prime rate decreases, in contrast, have weakly positive effects on the initiating banks. Prime rate change announcements are also found to have some effect on banks other than the initiating bank, implying that contagion effects exist.
ISSN:0021-9398
1537-5374
DOI:10.1086/296594