Time-varying market, interest rate, and exchange rate risk premia in the US commercial bank stock returns

Tai, Chu‐Sheng

doi:10.1016/s1042-444x(00)00031-1

Cited by 47 publications

(54 citation statements)

References 36 publications

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“…The GARCH specification has been used extensively in the literature to model exchange rate movements (for example, Akçay, Alper, and Karasulu, 1997; Felmingham and Mansfield, 1997; Tai, 2000).…”

Section: Methodsmentioning

confidence: 99%

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Berument

Günay

2003

Open Economies Review

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This paper examines the effect of exchange rate risk on interest rates within the uncovered interest rate parity condition for Turkey. When the interest rate is measured with the Treasury auction interest rate and the exchange rate risk is measured with the conditional variance of the exchange rate, then we found that there is a positive relation between the exchange rate risk and interest rate with the data from December 1986 to January 2001.The adaptation of the flexible exchange rate regime in the 1970s and the accelerated integration of financial markets with globalization after the 1980s made the behavior of exchange rates important to understand financial aggregates. The purpose of this paper is to assess the effect of the exchange rate and its risk on interest rates for a small open economy, in this case, Turkey. The exchange rate fluctuations introduce a risk on a return of an asset in foreign currency, and foreign investors might want to be compensated with higher risk premium. Therefore, it could be expected that there is a positive relationship between the exchange rate risk and interest rates. This study tests and finds that the exchange rate risk affects the interest rates positively in Turkey for the period from December 1986 to January 2001. This study focuses on Turkey for several reasons. Firstly, the Turkish economy has opened up substantially since the 1980s with extensive developments in the financial sector. Secondly, high exchange rate depreciations and inflation have been the basic characteristics of the Turkish economy. Thus, observing the effects of exchange rate risk on the interest rates is more feasible in Turkey.To the best of our knowledge, there is no study that looks at the effect of exchange rate risk on interest rates. There are various studies that have examined the effect of exchange rate risk on bank stock returns (see Tai, 2000, and

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Section: Methodsmentioning

confidence: 99%

“…There are various studies that have examined the effect of exchange rate risk on bank stock returns (see Tai, 2000, and the references cited therein). It is shown that the exchange rate risk could be another potential determinant of bank stock returns but interest rates are not examined.…”

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confidence: 99%

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Berument

Günay

2003

Open Economies Review

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“…En un intento de capturar explícitamente la naturaleza cambiante en el tiempo de la sensibilidad de las acciones del sector bancario ante los cambios de los tipos de interés, ha aparecido un cuerpo de trabajo más reciente basado en el empleo de metodología de tipo GARCH [véanse, por ejemplo, Song (1994), Elyasiani y Mansur (1998, Tai (2000), Faff et al (2005), o Joseph y Vezos (2006)]. Esta corriente asume la hipótesis de varianza condicional de los rendimientos variable en el tiempo.…”

Section: Revisión De La Literaturaunclassified

Impacto del riesgo de interés sobre las acciones del sector bancario español

Ballester

Ferrer

González

2009

Spanish Journal of Finance and Accounting / Revista Española de

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RESUMEN Este trabajo examina la exposición del sector bancario español al riesgo de interés en el ámbito de la metodología GARCH, prestando atención no sólo al impacto de los cambios en el nivel de los tipos de interés sino también al efecto de su volatilidad sobre la distribución de los rendimientos de las acciones bancarias. Los resultados obtenidos muestran que tanto las variaciones como la volatilidad de los tipos de interés tienen un impacto negativo y signifi cativo sobre el rendimiento de las acciones de las entidades fi nancieras, existiendo una relación directa entre el tamaño de las entidades y su grado de sensibilidad ante los movimientos y volatilidad de los tipos de interés. PALABRAS CLAVE Riesgo de interés; Acciones; Bancos; Volatilidad.ABSTRACT This paper examines the exposure of the Spanish banking sector to interest rate risk. With that aim, a univariate GARCH model which takes into account not only the effect of the interest rate changes but also the effect of their volatility on the distribution of the Spanish bank stock returns is used. The results show that both changes and volatility of interest rates have a negative and signifi cant impact on the stocks returns of the Spanish banking industry. Moreover, there seems to be a direct relationship between the size of banking fi rms and their degree of interest rate sensitivity.

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“…At present, the main body of market competition conditions, insufficient market under the condition of the commercial Banks to resist the ability of the risk, so the interest rate market on the development of commercial Banks and more important impact on business. Moreover, in today's market conditions, interest rate fluctuation is bigger, and more frequent, commercial Banks in accordance with their own ability to fluctuations in interest rates and trends are difficult to accurately forecast, which to a certain extent, increase the difficulty that the accurate and rapid response [3]. When the lack of appropriate financial instruments to hedge interest rate risk, will further aggravate the financial risks of commercial Banks.…”

Section: Introductionmentioning

confidence: 99%

The Risks of Commercial Banks on Interest Rate Marketization

Zhang¹

2016

IJEFM

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Abstract:The interest rate of market reform and deepening of our country commercial bank stability and sustainable development of the important and far-reaching impact. Is the core of modern economy and financial interest rates, as the price of money, interest rate plays an important role in the allocation of resources. As the interest rate market advance, domestic commercial bank's overall risk level is lower than the optimal risk. In this paper, in combination with the practical situation of the market, on how the commercial Banks under the background of market-oriented interest rate risk prevention, risk aversion caused by excessive systemic risks are expounded.

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Time-varying market, interest rate, and exchange rate risk premia in the US commercial bank stock returns

Cited by 47 publications

References 36 publications

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Impacto del riesgo de interés sobre las acciones del sector bancario español

The Risks of Commercial Banks on Interest Rate Marketization

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