 Exchange rate risk and the equity performance of financial intermediariesDimitrios Gounopoulos, Philip Molyneux (), Sotiris K. Staikouras, John Wilson and Gang Zhao International Review of Financial Analysis, 2013, vol. 29, issue C, 271-282 Abstract: This study uses the VAR-BEKK methodology to examine the relationship between equity returns and currency exposure for a sample of U.S., U.K. and Japanese banks and insurance firms during 2003–2011. The findings indicate that banks' equity returns are negatively related to changes in foreign currency value during the recent financial crisis (2008–2011). That is, the U.S. (Japanese) banking sector returns are negatively correlated to changes in the Japanese Yen (U.S. Dollar). Equity returns of U.S./U.K. insurers are negatively linked to changes in the value of Japanese Yen, and this relationship is accentuated during the crisis. Home currency exposure is not significant for any insurer. When size is taken into account, only small U.S. banks are exposed to home currency changes, while only large Japanese banks are exposed to foreign currency changes. Overall, the negative relationship between the foreign currency value and bank/insurance equity returns supports the “flight to quality” hypothesis from the U.S./U.K. to Japan. Keywords: Exchange rate risk; Equity performance; Financial intermediaries (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:29:y:2013:i:c:p:271-282 DOI: 10.1016/j.irfa.2012.04.001 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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