Do Changes in Interest Rates Affect Asset Returns? Event Study Results within the COVID-19 Pandemic in Poland

The aim of this research is to assess whether the interest rate cuts during the COVID-19 pandemic period in Poland affected asset returns on the Warsaw Stock Exchange (WSE). Within the pandemic period, and immediately after the first lock-down announcement on March 12, 2020, interest rates were substantially reduced by National Bank of Poland (NBP) to support economy against pandemic crisis. As a consequence, within three months the WIBOR1Y rate fell from 1.84% (February 27, 2020) to 0.30% (June 4, 2020). Unexpected changes in the term structure of interest rates arise particularly often in economic downturns, and they are crucial for investment decisions as a one-time decrease in rates increases the market value of assets. The event-study methodology that accommodates event-induced variance is used to investigate the event-induced abnormal returns performance. Given the interest rate cuts in 2020, three event windows with the corresponding estimation periods are considered. The empirical findings indicate that stock prices reaction was significantly driven by the interest rate declines, but the results differ among event windows