Interest Rate Sensitivity in the Common Stocks of Financial Intermediaries: A Methodological Note

Abstract

Several studies used a multi-factor model to examine the interest rate sensitivity of a finan? cial intermediary's common stock. The model was re-specified in an attempt to estimate each factor's influence. This note shows that the re-specification results in biased estima? tors. Hypothesis tests are flawed by failure to acknowledge the bias; this casts doubt upon the reported findings.