Investigation of the impact of interest rates on Canadian financial services stock performance

Abstract

This research paper investigates the impact that changes in yields on Government of Canada debt securities have on the performance of Canadian financial services stocks. The statistical models used to test for the relationship include the Kerkovius model and the two-index model developed by Stone. The study finds evidence of negative relationship between excess return on financial services stocks and the ratio of the dividend yield of these stocks to the yield on 10-year Government debt securities. The Stone model finds evidence of a positive relationship between bank stocks performance and the monthly return on long-term Government debt. However, the same relationship is not evident for insurance companies.