Asia-Pacific banks risk exposures: pre and post the Asian financial crisis

Hue Hwa Au Yong and Robert Faff

Applied Financial Economics, 2007, vol. 18, issue 6, 431-449

Abstract: In this article, we provide an insight into Asia-Pacific banks' market, interest rate and exchange rate exposures using a market-based model, pre and post the Asian financial crisis. Our study provides a unique comparative analysis across 10 countries, for both short-horizon and long-horizon risk exposures. Overall, our findings reveal that bank portfolios in countries that are harder hit by the Asian crisis have higher market and short-term interest rate exposures post-crisis. With long-horizon returns, there are a larger number of significant interest rate (IR) and exchange rate (ER) exposures, which are consistent with the prior literature that long-horizon return measures economic exposures that are difficult to hedge. When the long-horizon regressions with an error correction model are carried out, the results obtained support the short-horizon results. Among the country groups, the newly industrialized economies display the greatest sensitivity to IR and ER changes during the post-Asian crisis period. Investigating bank regulation effects, we find evidence that bank portfolios that experience lower restrictions on their activities and ownership, and greater private monitoring have lower market risk.

Date: 2007
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DOI: 10.1080/09603100600970057

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