Testing for asymmetric correlations between US sector returns and interest rate changes
This research examines potential asymmetric interactions between interest rate changes and sector returns in the US, focusing on some of the major economic and geopolitical events over recent years, such as the COVID-19 pandemic and the Russia–Ukraine conflict. These events have triggered political...
| Autores: | , , |
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| Tipo de recurso: | artículo |
| Fecha de publicación: | 2025 |
| País: | España |
| Institución: | Universidad de Castilla-La Mancha |
| Repositorio: | RUIdeRA. Repositorio Institucional de la UCLM |
| OAI Identifier: | oai:ruidera.uclm.es:10578/46278 |
| Acceso en línea: | https://doi.org/10.1142/S2010495225500186 https://www.worldscientific.com/doi/10.1142/S2010495225500186 https://hdl.handle.net/10578/46278 |
| Access Level: | acceso abierto |
| Palabra clave: | Crisis periods Interest rates NARDL US sector returns |
| Sumario: | This research examines potential asymmetric interactions between interest rate changes and sector returns in the US, focusing on some of the major economic and geopolitical events over recent years, such as the COVID-19 pandemic and the Russia–Ukraine conflict. These events have triggered political and economic responses that have deeply affected financial markets. Using the Nonlinear Autoregressive Distributed Lag (NARDL) methodology, the study focuses on 11 sector indices of the S&P 500. It also decomposes nominal interest rates into their real interest rate and inflation expectation components. The analysis covers the period from April 7, 2019 to April 28, 2024, dividing the sample into two distinct sub-periods characterized by declining and rising interest rates, respectively, for robustness purposes. The results reveal several key findings. First, the sensitivity of sector returns is sector-, model- and period-dependent. Second, disaggregating nominal interest rates into inflation expectations and real interest rates significantly improves the analysis of US stock market dynamics at the sector level. Inflation expectations are found to be positively correlated with sector returns, whereas real interest rates tend to have a negative effect. Third, short-term asymmetries in shifts in interest rates and inflation expectations have a significant impact on the US stock market. Finally, the explanatory power of the model is significantly stronger in the first sub-period, which is characterized by declining and low interest rates and the economic impact of the COVID-19 crisis. These results have important implications for portfolio managers and other financial market participants. |
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