Exchange Rate and Interest Rate Exposure of <scp>UK</scp> Industries Using First‐order Autoregressive Exponential <scp>GARCH</scp>‐in‐mean (<scp>EGARCH</scp>‐<scp>M</scp>) Approach

Olugbode, Mojisola; El‐Masry, Ahmed; Pointon, John

doi:10.1111/manc.12029

Cited by 15 publications

(8 citation statements)

References 130 publications

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“…The results of this robustness exercise, presented in Table , show that the degree of exposure of Spanish industries to movements in three‐month Treasury bill rates is substantially lower than that found by using fluctuations in 10‐year government bond yields for virtually all industries regardless of the subperiod examined. This evidence is fully in line with prior empirical work in this area carried out on different countries and sample periods (Ferrer et al ., ; Olugbode et al ., ; Shamsuddin, )…”

Section: Resultsmentioning

confidence: 99%

“…Nonetheless, more recent empirical evidence shows that the degree of interest rate sensitivity has declined over time, probably due to increased hedging activity by firms favored by the greater availability of improved tools for managing interest rate risk (Ryan and Worthington, ; Korkeamäki, ; Akhtaruzzaman et al ., ). Secondly, firms' stock returns tend to be more sensitive to changes in long‐term interest rates than to changes in short‐term rates (Ferrer et al ., ; Akhtaruzzaman et al ., ; Olugbode et al ., ; Shamsuddin, ). Thirdly, the interest rate exposure of nonfinancial firms is more pronounced in regulated and/or highly indebted industries such as Utilities, Industrials or Basic Materials (Sweeney and Warga, ; Bartram, ; Reilly et al ., ; Ferrer et al ., ).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Along the lines of, among others, Flannery and James (), Hirtle (), Olugbode et al . () and Shamsuddin (), weekly data series (Wednesday to Wednesday) are employed (1043 observations). This study uses Wednesday's data in order to avoid the weekend effect.…”

Section: Data Descriptionmentioning

confidence: 99%

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Interest Rate Sensitivity of Spanish Industries: A Quantile Regression Approach

Ferrando

Ferrer

Jareño

2015

The Manchester School

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This paper examines the degree of interest rate exposure of Spanish industries for the period 1993–2012 using the quantile regression methodology. The empirical results show that the Spanish stock market exhibits a significant level of interest rate sensitivity, although there are notable differences across industries and over time. In addition, the impact of changes in interest rates on industry equity returns tends to be more pronounced in extreme market conditions, i.e. during crises or bubbles in stock markets, than in normal periods. This finding may be related to herding behavior of stock investors during periods of market stress.

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Section: Resultsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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Interest Rate Sensitivity of Spanish Industries: A Quantile Regression Approach

Ferrando

Ferrer

Jareño

2015

The Manchester School

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“…Sweeney and Warga ( 1986 ), Kane and Unal ( 1988 ), Bartram ( 2002 ), Oertmann et al ( 2000 ), and Olugbode et al ( 2014 ) amongst others use changes in long-term interest rates as a proxy for unexpected changes in nominal interest rates because long term interest rates incorporate the expectations of economic agents and because long term interest rates are important as they determine the cost of corporate borrowing. Thus, long term interest rates strongly influence the investment decisions of firms and therefore affect the value of companies.…”

Section: Methodsmentioning

confidence: 99%

Interest and Inflation Risk: Investor Behavior

2016

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We examine investor behavior under interest and inflation risk in different scenarios. To that end, we analyze the relation between stock returns and unexpected changes in nominal and real interest rates and inflation for the US stock market. This relation is examined in detail by breaking the results down from the US stock market level to sector, sub-sector, and to individual industries as the ability of different industries to absorb unexpected changes in interest rates and inflation can vary by industry and by contraction and expansion sub-periods. While most significant relations are conventionally negative, some are consistently positive. This suggests some relevant implications on investor behavior. Thus, investments in industries with this positive relation can form a safe haven from unexpected changes in real and nominal interest rates. Gold has an insignificant beta during recessionary conditions hinting that Gold can be a safe haven during recessions. However, Gold also has a consistent negative relation to unexpected changes in inflation thereby damaging the claim that Gold is a hedge against inflation.

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“…There are a number of theoretical channels through which changes in exchange rate and interest rate affects stock returns. These channels can be enumerated (Kasman, Vardar, & Tunç, 2011;Olugbode, El-Masry, & Pointon, 2014) as: the intertemporal capital pricing model of Merton (1973); the nominal contracting hypothesis of Kessel (1956), Bach and Ando (1957), and French, Ruback, and Schwart (1983); the maturity mismatch hypothesis of Flannery, Hameed, and Harjes (1997); linkages between the revenues, costs and profitability of insurance companies and the unexpected changes in interest rates and exchange rates by Saunders and Yourougou (1990), Yourougou (1990).…”

Section: Introductionmentioning

confidence: 99%

The Effects of Exchange Rate and Interest Rate Exposure on the Stock Returns and Volatility of Turkish Insurance Companies

Çelik¹

2020

ISTJECON

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This study examines the impact of exchange rate and interest changes on stock returns and volatility of Turkish insurance companies using the EGARCH model for the period of 01/01/2009 to 15/04/2020. The results show: (i) while interest rate has a negative and significant effect on the conditional stock return, its effect on the volatility of stock returns of insurance companies is limited; (ii) however, the exact opposite is true for the exchange rate risk. The exchange rate risk exerts an important impact on the volatility of insurance stock returns but it has no effect on the mean stock returns of insurance companies; (iii) the findings also indicate that the volatility of insurance stock returns are highly persistent over time and they are more sensitive to old news than recent surprises; (iv) positive and negative news have an asymmetric effect on volatility implying that positive innovations (good news such as a market) have a larger impact on current conditional variance (current volatility of returns) than negative innovations (bad news such as market stagnation) of the same magnitude; (v) finally, the volatility of insurance portfolio's and insurance companies' stock returns has risen significantly during the financial crisis of 2008 compared to the rest of the sample period.

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Exchange Rate and Interest Rate Exposure of UK Industries Using First‐order Autoregressive Exponential GARCH‐in‐mean (EGARCH‐M) Approach

Cited by 15 publications

References 130 publications

Interest Rate Sensitivity of Spanish Industries: A Quantile Regression Approach

Interest Rate Sensitivity of Spanish Industries: A Quantile Regression Approach

Interest and Inflation Risk: Investor Behavior

The Effects of Exchange Rate and Interest Rate Exposure on the Stock Returns and Volatility of Turkish Insurance Companies

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