In a regression of a bank's stock return on an interest rate proxy and market returns, a ____ coefficient for the interest rate variable suggests that bank performance is ____ affected by ____ interest rates.

Question

Quizplus · Accepted Answer

A negative coefficient for the interest rate variable implies that bank performance is adversely affected by rising interest rates. This is because as interest rates increase, lending becomes more expensive, reducing the demand for credit and potentially leading to a decline in the bank's profitability.

In a Regression of a Bank's Stock Return on an Interest