Interest Rate and Foreign Exchange Sensitivity of Bank Stock Returns: Evidence from China

Xiangnan Meng and Xin Deng ()
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Xiangnan Meng: University of South Australia, Australia
Xin Deng: University of South Australia, Australia

Multinational Finance Journal, 2013, vol. 17, issue 1-2, 77-106

Abstract: This study employs a GARCH model to investigate the effects of interest rate and foreign exchange rate changes on Chinese banks’ stock returns. The results suggest that market movement and foreign exchange rate changes are statistically significant in explaining banks’ stock returns, despite different reactions from different bank portfolios in regard to risks. Interest rate fluctuations, on the other hand, appear to be insignificant factors in equity pricing. The results confirm the link between market risks and stock returns and highlight the need for further interest rate liberalization.

Keywords: risks; GARCH; banking industry; China (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:17:y:2013:i:1-2:p:77-106

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