Market Reaction of Share Prices to the Change of the CBR Key Rate: Industrial Analysis

The study examines the impact of changes in the key rate on the share prices of companies from different industries. The study conditionally divides the change in the key rate into two types of events: the increase and the decrease. Based on theoretical models, one can hypothesize that the shares of companies react only to unpredictable changes, the impact of the key rate does not differ between the financial and real sectors, and the short-term impact of changes in the key rate does not differ from the long-term. To test the hypotheses, the event study analysis is implied. The study reveals that the impact of the key rate differs significantly between industries and companies within the same industry; the response also depends on the length of the event window. The joint effect of the increase and decrease of the key rate is insignificant both for industries and standalone companies. The increase of the key rate significantly affects the share prices of companies, while the decrease of the key rate is insignificant. Unexpected rate changes also do not affect share prices. At the industry level, the shares are more sensitive to the long-term key rate, but at the company level this effect is not maintained. The study reveals the ability of financial institutions to hedge the risk of changes in the key rate. Key words: stock market; interest rate; share price reaction; even study analysis.