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Risk of interest rate and inflation: study of the US Stock Market

12nd National Competition for Economic Research Grants

International economics

Senior Researcher : Francisco Jareño Cebrián

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Research Centre or Institution : Universidad de Castilla-La Mancha. Albacete.


This project seeks to analyse the risk represented by variations in interest rates on variable income portfolios classified at sectoral level in the US market. For this, it studies the impact of the different factors which influence the nominal interest rates (forecast inflation and real interest rates) on stock exchange performances, distinguishing between the different sectors included in the S&P500 market index in the USA.

The relevance of this study can be justified by the spectacular increase in the use of external funding by companies and by the constant change in the variability of interest rates. Thus, fluctuations in interest rates have become one of the main sources of risk for companies. As the extensive literature suggests in this regard, its importance lies in the fact that it is a relevant issue for portfolio managers, who try to minimise the risk incurred in any investment.

In addition, it is important to note that this project proposes an analysis of the subject under study from different approaches. First of all, we start from the idea which considers that the ability of the companies in a sector to absorb inflation can explain a limited impact of the interest rates (Estep and Hanson, 1980; Asikoglu and Ercan, 1992; Jareño, 2005; and Jareño and Navarro, 2010). Secondly, part of the analysis is undertaken applying techniques for the study of events, reviewing the impact of inflation on stock market prices, highlighting the importance of the direction of news and the phase of the economic cycle.

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