THE IMPACT OF EXCHANGE RATES AND INTEREST RATES ON BANK STOCK RETURNS: EVIDENCE FROM U.S. BANKS

Verma Priti
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Verma Priti: College of Business Administration, Texas A&M University, Kingsville, USA

Studies in Business and Economics, 2016, vol. 11, issue 1, 124-139

Abstract: This paper examines the mean, volatility spillovers and response asymmetries between short-term and long-term interest rates, exchange rates and portfolios of money center, large and medium-sized banks in the U.S. I use the multivariate version of Nelson’s (1991) Exponential Generalized Autoregressive Conditionally Heteroscedastic (EGARCH) model. Results indicate mean and volatility spillovers from short-term interest rates and exchange rates and long-term interest rates and exchange rates to three bank portfolios. Results also show response asymmetries from short-term interest rates and exchange rates and long-term interest rates and exchange rates to all the three bank portfolios. These findings have important implications for bankers in terms of devising different hedging strategies against interest rates and exchange rate risks.

Keywords: Bank stock returns; EGARCH; Interest rates; Exchange rates (search for similar items in EconPapers)
Date: 2016
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