Interest Rate and Foreign Exchange Sensitivity of Bank Stock Returns: Evidence from China

Meng, Xiangnan; Deng, Xin

doi:10.17578/17-1/2-3

Cited by 2 publications

(3 citation statements)

References 61 publications

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“…Similarly, Meng and Deng (2013) carried out a study in China which sought to determine the relationship between foreign exchange, interest rate and bank stock returns. The study population comprised of 14 banks listed at Shenzhen and Shanghai stock exchanges.…”

Section: Empirical Reviewmentioning

confidence: 99%

Residential Mortgage Price Risk and Market Returns of Publicly Listed Mortgage Originators in Kenya

2021

RJFA

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Interest rates play a critical role for mortgage originating firms. Interest rate volatility significant influences mortgage uptake among other factors. Empirical literature focus on the relationship between interest rate volatility, and financial performance, and stock return. However, literature is inconclusive and inconsistent with reference to the relationship between residential mortgage price risk and market returns for mortgage originating firms in Kenya. Consequently, the overall objective of this study was to ascertain the effect of residential mortgage price risk on market returns of publicly listed mortgage originators in Kenya. The Loanable Funds Theory of Interest and Efficient Market Hypothesis model were utilized as the theoretical foundation of the study. The study adopted a descriptive form of research design. A census was conducted on the target population -11 publicly listed mortgage originators in Kenya. The study sourced its secondary data from the following sources: Central Bank of Kenya bank supervision reports, and the Nairobi Securities Exchange. Data was collected for the period between 2009 and 2019. The statistical software STATA was utilized to analyze data collected. A panel data regression model was used to draw inference from the data collected. The mean and standard deviation findings for residential mortgage interest rate as 0.2193 and 0.11195 respectively. The findings reveal a significant negative effect of residential mortgage price risk on market returns of publicly listed mortgage originators in Kenya. It is recommended that mortgage originators use derivative instruments and competitive interest rates to hedge against fluctuations in interest rates.

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Section: Empirical Reviewmentioning

confidence: 99%

Residential Mortgage Price Risk and Market Returns of Publicly Listed Mortgage Originators in Kenya

2021

RJFA

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“…Previous studies identify risk factors affecting bank stock returns and the time-varying nature of risk sensitivities of bank stocks. For example, with generalized autoregression conditional heteroskedasticity (GARCH) models, Tai (2000) find strong evidence that sensitivities of US bank stock returns to interest rates and exchange rates are time-varying, and Meng and Deng (2003) report similar results for Chinese bank stock returns. However, results from the GARCH models only suggest that risk sensitivities are unstable but cannot demonstrate detailed time variation paths of risk sensitivities.…”

Section: Introductionmentioning

confidence: 99%

“…Furthermore, the sensitivity may be time-varying due to the time-varying nature of the bank maturity profile (Flannery and James, 1984;Kwan, 1991). Tai (2000) and Meng and Deng (2003) report significant instability in interest rate sensitivity for US and Chinese bank stock returns. With their FLS results, He and Reichert (2003) provide strong evidence that the interest rate sensitivity of bank stock returns is time-varying and explain why the sensitivity is positive or negative in different time periods.…”

Section: Introductionmentioning

confidence: 99%

Time variation paths of risk sensitivities of bank stocks in the past two decades

Chen

Lenin

2016

JRF

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Purpose The purpose of this study is to trace time variation paths in risk sensitivities of bank stock returns over the period of 1990-2014, which covers one of most serious financial crises in the history of the USA. Design/methodology/approach This study programs the flexible least squares (FLS) approach (Kalaba and Testfatsion, 1988, 1989 and 1990) with R, a free statistical computing and graphics software, to estimate the three-factor model developed by He and Reichert (2003) to examine changes in risk sensitivities of bank stocks to the stock market, bond market and real estate market. Findings Both FLS and ordinary least squares (OLS) results indicate that the bond market (interest rate) sensitivity of bank stock returns experiences dramatic changes. It is significantly positive before the 2006 subprime mortgage crisis (11/1990 to 5/2006), reduces to insignificant in a short period of 11/2006 to 10/2008 and turns into significantly negative during the period of 11/2008-11/2014. Further, results of this study indicate that bank stocks negatively respond to changes in housing prices in the period of 11/1990-1/1994 and after that the sensitivity turns into significantly positive. The significant shifts in risk sensitivities of banks stock returns coincide with alterations in long-term interest rates and monetary policy, especially the enormously stimulative monetary policy after the financial crisis in 2008. Originality/value This study programs the FLS approach with R and uses the FLS approach to demonstrate the time variation paths of risk sensitivities of bank stocks over a period that covers the 2008 financial crisis. The OLS results verify the significant shifts in risk sensitivities suggested by the FLS estimates.

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Interest Rate and Foreign Exchange Sensitivity of Bank Stock Returns: Evidence from China

Cited by 2 publications

References 61 publications

Residential Mortgage Price Risk and Market Returns of Publicly Listed Mortgage Originators in Kenya

Residential Mortgage Price Risk and Market Returns of Publicly Listed Mortgage Originators in Kenya

Time variation paths of risk sensitivities of bank stocks in the past two decades

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