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Contribution Details

Type Master's Thesis
Scope Discipline-based scholarship
Title The effect of interest rates on stock returns in a low interest rate environment. An analysis of high and low dividend paying stock.
Organization Unit
  • Athos Stefanos Zapantis
  • Per Nils Anders Östberg
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 40
Date May 2019
Abstract Text I document the difference in sensitivity to interest rate change, that stocks with different dividend yield characteristics exhibit as well as how this sensitivity changes as the economy moves into low interest rate periods. Additionally I inquire about the presence of a difference in reaction to interest rate changes in the short term, specifically during the FOMC Fed Funds Target Rate announcements, evaluating both the reaction to the expected as well as the unexpected portion of the change in the Fed Funds Target rate. Finally I evaluate the existence of a difference in short term price drift immediately before and after the FOMC announcement day. The results of the analysis prove the existence of a difference in interest rate sensitivity between high and low dividend yield stocks. Additionally after analysing different interest rate periods, I prove that this interest rate sensitivity of high dividend yield stocks becomes stronger in the most recent extremely low interest rate period that came after the financial crisis of 2008. In the short term I present findings that back up the theory that no observable difference in reaction between high and low dividend yield stock is present both in the reaction to the FED Funds Target Rate, as well as with regards to the pre-FOMC meeting drift. Finally I discuss possible explanation for these observations based on the Clientele and the "Reaching for Dividends" hypothesis.
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