interest-sensitive stock

Interest-sensitive stock

Stocks whose earnings are dependent upon and change with the interest rate, e.g., bank stocks.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Interest Sensitive Stock

A stock whose value is likely to increase or decrease substantially due to changes in interest rates. Most interest sensitive stocks represent publicly-traded companies with high rates of long-term debt. These companies' stocks decrease in value when interest rates rise because the higher cost of borrowing may result in lower profits and dividends. Conversely, their stocks rise on lower interest rates. For this reason, utility companies tend to have interest sensitive stocks.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

interest-sensitive stock

A stock whose price tends to move in the opposite direction from that of interest rates. Interest-sensitive stocks include nearly all preferred stocks and the common stocks of industries such as electric utilities and savings and loans. A common stock may be interest-sensitive either because its dividend is relatively fixed (as with an electric utility) or because the firm raises a large portion of its funds through borrowing (as with a savings and loan or a commercial bank).
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Interest-sensitive stocks including property developers and utilities firms retreated more than 0.8 percent on Friday, after Federal Reserve Chair Janet Yellen said that the US central bank should continue to raise interest rates gradually to keep jobs plentiful and inflation low.
And if there's a pause in rate hikes, Washington says interest-sensitive stocks such as banks, brokerages, and insurance companies should benefit.
During a climate of gradually improving growth prospects, interest-sensitive stocks like banks and investment companies usually perform strongly because of low and declining interest rates.
Research in this area was sparked by Stone's (1974) suggestion that the returns of certain interest-sensitive stocks could better be explained by a two-factor pricing model incorporating both equity and debt returns.