The Impact of Federal Reserve Interest Rate Hike on the Entertainment Industry: An Empirical Evidence

Abstract

The purpose of this paper is to investigate the impact of Federal Reserve interest rate hikes on the entertainment industry, with a focus on the American film company Disney. The study utilizes a VAR model for impulse response analysis and an ARMA-GARCH model for assessing stock returns and conditional variances. The findings indicate that a rise in the USD index leads to a decrease in Disney's earnings from foreign markets, and a Fed rate hike could have a negative impact on its profitability. However, higher interest rates can encourage funds to flow into the stock market and increase the demand for stocks, leading to a rise in stock prices. Negative effect dominates at the beginning, followed by positive effect, and then changes back to negative effect, gradually net effect tends to 0 over time. The paper suggests that investors diversify their portfolio, and that enterprises develop targeted risk management and seek policy support. The study provides insights into the multifaceted effects of a Fed rate hike on the entertainment industry, and contributes to the existing literature on exchange rate risk and capital structure in multinational corporations.