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Prime Rate Changes: Is There an Advantage in Being First?

Prafulla G. Nabar, Sang Yong Park and Anthony Saunders
The Journal of Business
Vol. 66, No. 1 (Jan., 1993), pp. 69-92
Stable URL: http://www.jstor.org/stable/2353342
Page Count: 24
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Prime Rate Changes: Is There an Advantage in Being First?
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Abstract

This article analyzes the impact of prime rate changes on the stock prices of prime rate change initiating banks relative to noninitiating banks. The prime rate as a "sticky price" is analyzed, and the potential directions (and sizes) of information effects are discussed and empirically examined. It is found that prime rate increases generally convey bad news about the initiating banks. Prime rate decreases, in contrast, have weakly positive effects on the initiating banks. Prime rate change announcements are also found to have some effect on banks other than the initiating bank, implying that contagion effects exist.

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