PRIME RATE CHANGES AND RETURNS TO INDUSTRIES - ANNOUNCEMENT PERIOD EVIDENCE

This study documents the announcement date reaction of industry equity indices to prime lending rate changes. Although prime rate changes ar e widely believed to be anticipated by both academicians and market pr actitioners, the evidence presented indicates these announcements cont ain information relevant for security pricing. The broad market and ma ny sector and industry groupings exhibit significant mean announcement period reactions in the direction opposite to the prime rate change. In addition, this reaction is fairly consistent, indicating the result s are not driven by a few outliers.