Survey Data and the Interest Rate Sensitivity of US Bank Stock Returns

Benink, Harald; Wolff, Christian

doi:10.1111/1468-0300.00030

Cited by 31 publications

(22 citation statements)

References 22 publications

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“…This is in line with the banks' motivation and pattern of engaging in off‐balance‐sheet instruments during 1984–1991 (Jagtiani, Saunders, and Udell, 1995). The insignificant coefficients for this period are in line with the results of Benink and Wolff (2000) who employ survey data.…”

supporting

confidence: 85%

“…19 An 18 A thorough exposition of the quantitative aspects of financial risk management can be found in Dowd (1998). 19 Robinson (1995) finds that the yield effect is greater in the post-Basel period, but no explanation is provided (in contrast to Allen and Jagtiani, 1997;Benink and Wolff, 2000). One could argue that banks have changed their asset-liability structures and become more sensitive possibly due to a risk substitution policy.…”

Section: Interest Rate Risk and Market Realitiesmentioning

confidence: 99%

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Financial Intermediaries and Interest Rate Risk: II

Staikouras

2006

Financial Market

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The current work extends and updates the previous survey (Staikouras, 2003) by looking at other aspects of the financial institutions' yield sensitivity. The study starts with an extensive discussion of the origins of asset-liability management and the subsequent work to identify effective ways of measuring and managing interest rate risk. The discussion implicates both regulatory and market-based approaches along with any issues surrounding their applicability. The literature is enriched by recognizing that structural and regulatory shifts affect financial institutions in different ways depending on the size and nature of their activities. It is also noted that such shifts could change the bank's riskiness, and force banks to adjust their balance sheet size by altering their maturity intermediation function. Besides yield changes, market cycles are also held responsible for asymmetric effects on corporate values. Furthermore, nonstandard investigations are considered, where embedded options and basis risk are significant above and beyond the intermediary's rate sensitivity, while shocks to the slope of the yield curve is identified as a new variable. When the discount privilege is modeled as an option, it is shown that its value is incorporated in the equities of qualifying banks. Finally, volatility clustering is further established while constant relative risk aversion is not present in the U.S. market. Although some empirical findings may be quite mixed, there is a general consensus that all forms of systematic risk, risk premia, and the risk-return trade-off do exhibit some form of variability, not only over time but also across corporate sizes and segments.

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confidence: 85%

Section: Interest Rate Risk and Market Realitiesmentioning

confidence: 99%

Financial Intermediaries and Interest Rate Risk: II

Staikouras

2006

Financial Market

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“…Benink and Wolff (2000) provide empirical evidence on the interest rate sensitivity of the stock returns of the 20 largest US bank holding companies. The main contribution of the paper is the use of survey data and the forecast errors of ARIMA processes to model the unexpected movement in interest rates.…”

Section: Introductionmentioning

confidence: 99%

Flow-through capability: The Spanish case

Jareño

2005

J Asset Manag

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Thus, the paper is organised into three parts. The first part looks at the main stock interest risk assessment models. The second part revises previous literature on the Fisher effect, in order to check whether the majority of nominal interest rate movements are caused by inflation rate fluctuations, the real interest rate remaining constant. The final part shows the empirical analysis aimed at estimating the flow-through coefficients of the Spanish companies and sets out the empirical results. Literature reviewThe current literature attempts to extend the concept of bond duration to equities. For instance, Leibowitz and Martin (1986) estimate the interest rate sensitivity of the US equity market. The basic model from which this paper starts is the dividend discount model (DDM) Abstract This paper analyses the repercussion of variations in interest rates on quoted stocks. First, it reviews the main models of interest risk assessment, whose basic tool is the stock duration, that is, the sensitivity of the stock price to movements in nominal interest rates. It also analyses the main criticism concerning these models. Secondly, it estimates the capability of Spanish companies to pass inflation changes on to product or services prices.

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“…Second, bank stock returns tend to exhibit more sensitivity to changes in long-term interest rates than to changes in short-term rates (Elyasiani and Mansur, 1998;Bartram, 2002;Saporoschenko, 2002;Czaja et al, 2009). Third, the interest rate sensitivity of stock returns of banks has declined over time mainly due to the increased availability of more advanced tools for measuring and managing IRR (Faff and Howard, 1999;Benink and Wolff, 2000;Ryan and Worthington, 2004;Joseph and Vezos, 2006).…”

mentioning

confidence: 99%

“…In the same vein, Hallerbach (1994) Following a usual practice in the literature (Flannery and James, 1984;Hirtle, 1997;Benink and Wolff, 2000;Soto et al, 2005;Ferrer et al, 2010), weekly stock returns, adjusted for dividends and stock splits, are employed. The weekly returns are calculated from Wednesday to Wednesday using closing stock prices in order to prevent the possible bias associated to the weekend effect.…”

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confidence: 99%

Linear and nonlinear interest rate sensitivity of Spanish banks

Ballester

Ferrer

González

2011

The Spanish Review of Financial Economics

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Interest rate risk is one of the major financial risks faced by banks due to the very nature of the banking business. The most common approach in the literature has been to estimate the impact of interest rate risk on banks using a simple linear regression model. However, the relationship between interest rate changes and bank stock returns does not need to be exclusively linear. This article provides a comprehensive analysis of the interest rate exposure of the Spanish banking industry employing both parametric and non parametric estimation methods. Its main contribution is to use, for the first time in the context of banks' interest rate risk, a nonparametric regression technique that avoids the assumption of a specific functional form. Linear and Nonlinear ABSTRACTInterest rate risk is one of the major financial risks faced by banks due to the very nature of the banking business. The most common approach in the literature has been to estimate the impact of interest rate risk on banks using a simple linear regression model. However, the relationship between interest rate changes and bank stock returns does not need to be exclusively linear. This article provides a comprehensive analysis of the interest rate exposure of the Spanish banking industry employing both parametric and non parametric estimation methods. Its main contribution is to use, for the first time in the context of banks' interest rate risk, a nonparametric regression technique that avoids the assumption of a specific functional form. One the one hand, it is found that the Spanish banking sector exhibits a remarkable degree of interest rate exposure, although the impact of interest rate changes on bank stock returns has significantly declined following the introduction of the euro. Further, a pattern of positive exposure emerges during the post-euro period. On the other hand, the results corresponding to the nonparametric model support the expansion of the conventional linear model in an attempt to gain a greater insight into the actual degree of exposure. J.E.L. Classification: G12, G21, C52Keywords: interest rate risk, banking firms, stocks, nonparametric regression techniques. Corresponding author. Departamento de Economía Financiera y Actuarial, Universidad de Valencia, Facultad de Economía, Avda. Tarongers, s/n, 46022 Valencia, Spain. Laura.Ballester@uv.es. Laura Ballester would like to express her gratitude for the funding received from the JCCM, proyecto PEII11-0031-6939. The authors would like to thank Alfonso Novales, Juan Nave, Ángeles Fernández, Paz Jordá, Miguel Ángel Martínez, Joaquín Maudos, and Eliseo Navarro for their valuable comments and suggestions. The authors are also grateful to the two anonymous referees for their comments that have contributed to improve this paper. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 6...

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Survey Data and the Interest Rate Sensitivity of US Bank Stock Returns

Cited by 31 publications

References 22 publications

Financial Intermediaries and Interest Rate Risk: II

Financial Intermediaries and Interest Rate Risk: II

Flow-through capability: The Spanish case

Linear and nonlinear interest rate sensitivity of Spanish banks

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