Abstract

The purpose of this paper is to reconcile previous findings of prolonged asymmetrical relationships between interest rates and stock returns, where a reduction in interest rates in one month was shown to produce positive stock returns over a twelve-month period. This study provides evidence that the puzzling relationships suggested by a previous study are sample-dependent and cannot withstand further scrutiny. Test results presented in this study show that investors are not likely to earn abnormal returns through an investment strategy constructed on the expectation of long-term positivie returns following a reduction in interest rates.

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