Correspondence: Paul Sarmas, College of Business Administration, California State Polytechnic University, Pomona, 3801 West Temple Avenue, Pomona, California 91768, USA. Tel: +1 909 869 2405; Fax: +1 909 869 2124; e-mail: PSarmas@csupomona.edu

¹is a Professor of Finance at California State Polytechnic University, Pomona. He has received a Doctor of Business Administration degree from Mississippi State University with a major in Finance and minors in Economics and Sociology. He has coauthored articles that are published in academic journals such as Financial Management and Journal of Applied Business Research. He teaches courses in the areas of investments, corporate finance, and commercial banking. As a Fulbright Scholar, he was associated with Lisbon Institute of Management for one semester.

²is a Professor of Finance at the California State Polytechnic University, Pomona. He received an MBA degree from Hofstra University in the area of finance, banking and investment in 1979, and a Ph.D. degree in business administration with finance emphasis from Claremont Graduate University in 1989. He has published articles in the areas of international finance, corporate finance, and financial market in various refereed journals. He is often invited to teach undergraduate and graduate courses at the University of Southern California and Chapman University. His primary teaching areas are corporate finance, financial markets and institutions, and international finance.

³is director of the Center for Applied Competitive Technologies (CACT) at Riverside Community College. In addition, he teaches part-time with the University of California Extension at the Irvine and Riverside Campuses. Mr. Rogers is an experienced management and consulting/training/education professional. His experience spans years of supervision, management, quality, consulting, training, and engineering. He has worked with firms in the United States as well as Latin America and Asia. Hank holds a bachelor's degree from the University of Notre Dame, an M.S. in Industrial Technology from Illinois State University, and an MBA from California Polytechnic University, Pomona with an emphasis in Finance.

Received 16 November 2006; Revised 16 November 2006.

Abstract

This study uses a sample of 272 banks to examine the effect of the Federal Reserve's interest rate change on the banks' stocks. For that purpose, two events of change in interest rate were selected. The event s tudy is used to determine abnormal returns, which are then explained by a set of financial strategies in a multiple regression model. The results seem to imply that the effect of the Federal Reserve interest rates action depends on both the magnitude of the rate change and the expected versus the actual change.