Use of Derivatives and Market Valuation of the Banking Sector: Evidence from the European Union

Marius Cristian Miloș () and Laura Raisa Miloș
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Marius Cristian Miloș: Department of Finance, Faculty of Economics and Business Administration, West University of Timisoara, 16 J.H Pestalozzi Str., 300115 Timisoara, Romania
Laura Raisa Miloș: Department of Finance, Faculty of Economics and Business Administration, West University of Timisoara, 16 J.H Pestalozzi Str., 300115 Timisoara, Romania

JRFM, 2022, vol. 15, issue 11, 1-14

Abstract: (1) Background: This paper aims to investigate whether the derivatives usage by the banking sector in the European Union has impacted its market valuation in the aftermath of the financial crisis. (2) Methods: Our analysis takes 120 European financial institutions listed on the European Union stock exchange over a period of 14 years into account (2008–2021). We use the generalized method of moments (GMM) to assess whether the use of derivatives allows financial intermediaries to increase their market value. Control variables, such as size, profitability, expectations of the market, bank risk, liquidity performance, and financial condition, are also taken into consideration. (3) Results: Our main findings suggest that market value is affected negatively by derivative asset accumulation. (4) Conclusions: The results are in line with the studies that investigated the impact of financial derivatives on the market value and found a negative connection between the two, justified by the suboptimal hedging or the higher volatility of the earnings.

Keywords: risk management; financial derivatives; financial services sector; GMM (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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