To investigate a credit channel of monetary policy transmission
Study credit channel using clustering and test the difference in mean portfolio returns. The calculated debt-to-capital, interest coverage, current ratio, payables turnover ratio. Analysis of stock market behavior. Comparison of portfolios’ performances.
| Рубрика | Финансы, деньги и налоги |
| Вид | курсовая работа |
| Язык | английский |
| Дата добавления | 23.10.2016 |
| Размер файла | 1,5 M |
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So, we have found another supportive evidence for the existence of the credit channel. At least, we have shown that particular measures of financial constraint - Debt-to-Capital, Tobin's Q, and newly By far of our knowledge. introduced Interest Coverage - influence stocks behavior on days of change of the federal funds interest rate during 1997 - 2008. More importantly, we have introduced a new approach to this analysis, and have shown that it provides similar conclusions.
Apart from the one, which we found particularly interesting. (Ehrmann & Fratzcher, 2004) came to a conclusion that low levels of Debt-to-Capital ratio are signs of higher financial constraint faced by firms, because their shares were more responsive to a monetary policy change than that of the firms in the middle group. Based on our results we suggest that low levels of debt - particularly lower than 31% for a whole range of firms - is a sign of healthy position because these stocks outperformed the other.
Conclusions
So, in this work we suggested a new approach to estimating the role of financial ratios in explaining equities reaction to surprise changes in the target interest rate. Thus far, we have found new evidence for existence of credit channel of monetary policy transmission on equities' market. In particular, we've established supportive evidence for these measures of financial health of the firms - Debt-to-Capital ratio, Tobin's Q, and Interest Coverage ratio.
Given the limitations of the work capabilities of our two-step approach are not entirely investigated and we have a lot of space for future research.
credit portfolio stock market
Bibliography
1. Aksoy Y., 2015. Monetary Economics. A Study Guide. London: University of London.
2. Bernanke B.S. & Blinder, A.S., 1992. The Federal Funds Rate and the Channels of Monetary Transmission. The American Economic Review, 82(4), pp. 901-921.
3. Bernanke B.S. & Gertler, M., 1995. Inside the Black Box: The Credit Channel of Monetary Policy Transmission. The Journal of Economic Perspectives, 9(4), pp. 27-48.
4. Bernanke B.S. & Kuttner, K.N., 2005. What Explains the Stock Market's Reaction to Federal Reserve Policy?. The Journal of Finance, 60(3), pp. 1221-1257.
5. Chan W.S., 2001. Stock Price Reaction to News and No-News: Drift and Reversal After Headlines.
6. Dougherty C., 2011. Introduction to Econometrics. 4 ed. Oxford: Oxford University Press.
7. Ehrmann M. & Fratzcher M., 2004. Taking Stock: Monetary Policy Transmission to Equity Markets. Journal of Money, Credit and Banking, 36(4), pp. 719-737.
8. Everitt B., 1993. Cluster Analysis.. 3 ed. London: Arnold.
9. Fama E.F., 1970. Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 25(2), pp. 383-417.
10. Gurkaynak R.S., 2005. Using Federal Funds Futures Contracts for Monetary Policy Analysis. Division of Monetary Affairs Board of Governors of the Federal Reserve System.
11. Hoaglin D., Iglewicz, B. & Tukey, J., 1981. Small-Sample Performance of a Resistant Rule for Outlier Detection. In Stata Documentation from 1980 Proceedings of the Statistical Computing Section. American Statistical Association.
12. Jain A.K. & Dubes R.C., 1988. Algorithms for Clustering Data. Englewood Cliffs, NJ: Prentice Hall Advanced Reference Series.
13. Krueger J.T. & Kuttner K.N., 1996. The Fed Funds Futures Rate As a Predictor of Federal Reserve Policy. Journal of Futures Markets, Volume 16, pp. 865-879.
14. Kuttner K.N., 2000. Monetary Poolicy Surprises and Interest Rates: Evidence from the Fed Funds Futures Market.
15. Leiwy D. & Perks R., 2013. Accounting: Understanding and Practice. 4 ed. s.l.:McGraw-Hill Higher Education.
16. Owen L., Polk C. & Saa-Requejo J., 2001. Financial Returns and Stock Constraints. The Review of Financial Studies, 14(2), pp. 529-554.
17. Thorbecke W. & Coppock L., 1996. Monetary Policy, Stock Returns, and the Role of Credit in the Transmission of Monetary Policy. Southern Economic Journal, 62(4), pp. 989-1001.
18. Tobin J., 1978. Monetary Policies and the Economy: The Transmission Mechanism. Southern Economic Journal, 44(3), pp. 421-431.
Appendix
A Table of Actual changes, Expected and Surprise components of the Real Changes and “No-Action” events, in comparison with K. Kuttner's (2001) estimates for overlapping dates:
|
# total |
Date of the announcement |
?R, bp Actual |
?Re, bp Expected |
?Ru, bp Unexpected |
?Ru, bp (Kuttner's) |
|
|
101 |
12/16/08 |
-75 |
-58.5 |
-16.5 |
n/a |
|
|
100 |
10/29/08 |
-50 |
-27.5 |
-22.5 |
n/a |
|
|
99 |
10/08/08 |
-50 |
-37.5 |
-12.5 |
n/a |
|
|
98 |
09/16/08 |
0 |
-9 |
+9 |
n/a |
|
|
97 |
08/05/08 |
0 |
+0.5 |
-0.5 |
n/a |
|
|
96 |
06/25/08 |
0 |
+1 |
-1 |
n/a |
|
|
95 |
04/30/08 |
-25 |
-23.5 |
-1.5 |
n/a |
|
|
94 |
03/18/08 |
-75 |
-96 |
+21 |
n/a |
|
|
93 |
01/30/08 |
-50 |
-30 |
-20 |
n/a |
|
|
92 |
12/11/07 |
-25 |
-26 |
+1 |
n/a |
|
|
91 |
10/31/07 |
-25 |
-18 |
-7 |
n/a |
|
|
90 |
09/18/07 |
-50 |
-34 |
-16 |
n/a |
|
|
89 |
08/17/07 |
0 |
-2.5 |
+2.5 |
n/a |
|
|
88 |
08/07/07 |
0 |
-4 |
+4 |
n/a |
|
|
87 |
06/28/07 |
0 |
+0.5 |
-0.5 |
n/a |
|
|
86 |
05/09/07 |
0 |
-0.5 |
+0.5 |
n/a |
|
|
85 |
03/21/07 |
0 |
0 |
0 |
n/a |
|
|
84 |
01/31/07 |
0 |
-0.5 |
+0.5 |
n/a |
|
|
83 |
12/12/06 |
0 |
0 |
0 |
n/a |
|
|
82 |
10/25/06 |
0 |
0 |
0 |
n/a |
|
|
81 |
09/20/06 |
0 |
0 |
0 |
n/a |
|
|
80 |
08/08/06 |
0 |
+4 |
-4 |
n/a |
|
|
79 |
06/29/06 |
+25 |
+14.5 |
+10.5 |
n/a |
|
|
78 |
05/10/06 |
+25 |
+25 |
0 |
n/a |
|
|
77 |
03/28/06 |
+25 |
+24.5 |
+0.5 |
n/a |
|
|
76 |
01/31/06 |
+25 |
+21.5 |
+3.5 |
n/a |
|
|
75 |
12/13/05 |
+25 |
+25 |
0 |
n/a |
|
|
74 |
11/01/05 |
+25 |
+10 |
+15 |
n/a |
|
|
73 |
09/20/05 |
+25 |
+21.5 |
+3.5 |
n/a |
|
|
72 |
08/09/05 |
+25 |
+25 |
0 |
n/a |
|
|
71 |
06/30/05 |
+25 |
+7.5 |
+17.5 |
n/a |
|
|
70 |
05/03/05 |
+25 |
+24.5 |
+0.5 |
n/a |
|
|
69 |
03/22/05 |
+25 |
+25 |
0 |
n/a |
|
|
68 |
02/02/05 |
+25 |
+25 |
0 |
n/a |
|
|
67 |
12/14/04 |
+25 |
+25 |
0 |
n/a |
|
|
66 |
11/10/04 |
+25 |
+24.5 |
+0.5 |
n/a |
|
|
65 |
09/21/04 |
+25 |
+25 |
0 |
n/a |
|
|
64 |
08/10/04 |
+25 |
+23 |
+2 |
n/a |
|
|
63 |
06/30/04 |
+25 |
+4 |
+21 |
n/a |
|
|
62 |
05/04/04 |
0 |
+1 |
-1 |
n/a |
|
|
61 |
03/16/04 |
0 |
0 |
0 |
n/a |
|
|
60 |
01/28/04 |
0 |
0 |
0 |
n/a |
|
|
59 |
12/09/03 |
0 |
0 |
0 |
n/a |
|
|
58 |
10/20/03 |
0 |
0 |
0 |
n/a |
|
|
57 |
09/16/03 |
0 |
0 |
0 |
n/a |
|
|
56 |
08/12/03 |
0 |
0 |
0 |
n/a |
|
|
55 |
06/25/03 |
-25 |
-37.5 |
+12.5 |
n/a |
|
|
54 |
05/06/03 |
0 |
-1.5 |
+1.5 |
n/a |
|
|
53 |
03/18/03 |
0 |
-2.5 |
+2.5 |
n/a |
|
|
52 |
01/29/03 |
0 |
+1.5 |
-1.5 |
n/a |
|
|
51 |
12/10/02 |
0 |
0 |
0 |
n/a |
|
|
50 |
11/06/02 |
-50 |
-34 |
-16 |
n/a |
|
|
49 |
09/24/02 |
0 |
-2 |
+2 |
n/a |
|
|
48 |
08/13/02 |
0 |
-3 |
+3 |
n/a |
|
|
47 |
06/26/02 |
0 |
+2 |
-2 |
n/a |
|
|
46 |
05/07/02 |
0 |
0 |
0 |
n/a |
|
|
45 |
03/19/02 |
0 |
+2 |
-2 |
n/a |
|
|
44 |
01/30/02 |
0 |
-2 |
+2 |
n/a |
|
|
43 |
12/11/01 |
-25 |
-26 |
+1 |
n/a |
|
|
42 |
11/06/01 |
-50 |
-39.5 |
-10.5 |
n/a |
|
|
41 |
10/02/01 |
-50 |
-41.5 |
-8.5 |
n/a |
|
|
40* |
09/17/01 |
-50 |
n/a |
n/a |
n/a |
|
|
* the observation is dropped from the analysis |
||||||
|
39 |
08/21/01 |
-25 |
-27 |
+2 |
n/a |
|
|
38 |
06/27/01 |
-25 |
-33.5 |
+8.5 |
n/a |
|
|
37 |
05/15/01 |
-50 |
-42.5 |
-7.5 |
n/a |
|
|
36 |
04/18/01 |
-50 |
-8 |
-42 |
n/a |
|
|
35 |
03/20/01 |
-50 |
-52.5 |
+2.5 |
n/a |
|
|
34 |
01/31/01 |
-50 |
-33.5 |
-16.5 |
n/a |
|
|
33 |
01/03/01 |
-50 |
-21 |
-29 |
n/a |
|
|
32 |
12/19/00 |
0 |
-5.5 |
+5.5 |
n/a |
|
|
31 |
11/15/00 |
0 |
0 |
0 |
n/a |
|
|
30 |
10/03/00 |
0 |
0 |
0 |
n/a |
|
|
29 |
08/22/00 |
0 |
0 |
0 |
n/a |
|
|
28 |
06/28/00 |
0 |
-3 |
+3 |
n/a |
|
|
27 |
05/16/00 |
+50 |
+46 |
+4 |
n/a |
|
|
26 |
03/21/00 |
+50 |
+27 |
-2 |
n/a |
|
|
25 |
02/02/00 |
+25 |
+28.5 |
-3.5 |
-5 |
|
|
24 |
12/21/99 |
0 |
0 |
0 |
n/a |
|
|
23 |
11/16/99 |
+25 |
+17 |
+8 |
+9 |
|
|
22 |
10/05/99 |
0 |
+1.5 |
-1.5 |
n/a |
|
|
21 |
08/24/99 |
+25 |
+22 |
+3 |
+2 |
|
|
20 |
06/30/99 |
+25 |
+29 |
-4 |
-4 |
|
|
19 |
05/18/99 |
0 |
+1 |
-1 |
n/a |
|
|
18 |
03/30/99 |
0 |
-1 |
+1 |
n/a |
|
|
17 |
02/03/99 |
0 |
+1 |
-1 |
n/a |
|
|
16 |
12/22/98 |
0 |
0 |
0 |
n/a |
|
|
15 |
11/17/98 |
-25 |
-19 |
-6 |
-6 |
|
|
14 |
10/15/98 |
-25 |
-9 |
-16 |
-26 |
|
|
13 |
09/29/98 |
-25 |
-31 |
+6 |
0 |
|
|
12 |
08/18/98 |
0 |
-1 |
+1 |
n/a |
|
|
11 |
07/01/98 |
0 |
+1 |
-1 |
n/a |
|
|
10 |
05/19/98 |
0 |
+2 |
-2 |
n/a |
|
|
9 |
03/31/98 |
0 |
-1 |
+1 |
n/a |
|
|
8 |
02/04/98 |
0 |
-1 |
+1 |
n/a |
|
|
7 |
12/16/97 |
0 |
+1 |
-1 |
n/a |
|
|
6 |
11/12/97 |
0 |
+2 |
-2 |
n/a |
|
|
5 |
09/30/97 |
0 |
-3 |
+3 |
n/a |
|
|
4 |
08/19/97 |
0 |
-1 |
+1 |
n/a |
|
|
3 |
07/02/97 |
0 |
+1 |
-1 |
n/a |
|
|
2 |
05/20/97 |
0 |
+9 |
-9 |
n/a |
|
|
1 |
03/25/97 |
+25 |
+21 |
+4 |
+3 |
Table 2. Minimum and maximum values in clusters with higher and lower medians.
|
min - high median group |
Group |
DEBT-TO-CAPITAL, % |
TOBIN'S Q |
INTEREST COVERAGE |
|
|
-75 |
1 |
33.81 |
0.845466 |
17.078 |
|
|
-50 |
2 |
35.66 |
2.0719 |
11.037 |
|
|
-25_1 |
3 |
24.64 |
2.22404 |
21.725 |
|
|
-25_2 |
4 |
35.49 |
2.32048 |
10.355 |
|
|
-25_3 |
5 |
26.84 |
2.281742 |
15.807 |
|
|
25_1 |
6 |
31.56 |
2.51387 |
11.364 |
|
|
25_2 |
7 |
29.21 |
2.275665 |
15.317 |
|
|
50 |
8 |
36.04 |
2.000405 |
11.037 |
|
|
max - low median group |
Group |
DEBT-TO-CAPITAL, % |
TOBIN'S Q |
INTEREST COVERAGE |
|
|
-75 |
1 |
33.38 |
1.898733 |
16.182 |
|
|
-50 |
2 |
35.33 |
2.0711 |
10.53 |
|
|
-25_1 |
3 |
23.71 |
2.21684 |
20.207 |
|
|
-25_2 |
4 |
35.33 |
2.324718 |
9.634 |
|
|
-25_3 |
5 |
26.48 |
2.262523 |
15.449 |
|
|
25_1 |
6 |
31.45 |
2.51968 |
11.275 |
|
|
25_2 |
7 |
29.21 |
2.273211 |
15.265 |
|
|
50 |
8 |
35.68 |
1.982251 |
10.499 |
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