Policy uncertainty, the use of derivatives: Evidence from U.S. bank holdingcompanies (BHCs)

Dung Tran, M. Kabir Hassan, Sarah H. AlTalafha and Arja Turunen-Red

Research in International Business and Finance, 2021, vol. 58, issue C

Abstract: We explore the link between bank holding companies’ hedging in derivatives and economic policy uncertainty using a newspaper-based index of policy uncertainty. Interestingly, we find that bank holding companies use derivatives less intensively in states where policy uncertainty is high (they hedge against homogenous (tradable) risk only); instead, they allocate their risk exposure via lending (thus increasing their credit risk). This finding is robust to different combinations of data samples, including the usage of only fourth quarter data, annual data, excluding bank mergers and acquisitions, and the results are robust to sample selection.

Keywords: Bank holding company; Hedging behaviour; Derivatives use; Economic policy uncertainty; Risk exposure (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 G38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921000684

DOI: 10.1016/j.ribaf.2021.101447

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