Abstract:The interest rate sensitivity of stock returns of financial and non-financial corporations is a well-known phenomenon. However, only little is known about the part of total stock returns that is attributable to the compensation an investor receives for being exposed to interest rate risk when investing in equity securities. We pursue here a benchmark portfolio approach, constructing benchmark portfolios having the same interest rate risk exposure as a particular stock. By studying the time series of returns of… Show more
“…This approach was pioneered by Stone (1974) and has recently been applied by several authors to European financial corporations, including Oertmann et al . (2000) and Czaja et al . (2009a, 2009b).…”
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confidence: 95%
“…7 There are also numerous models and papers that analyse the interest rate sensitivity of (exchange-traded) banks based on stock returns rather than on accounting-based regulatory data. This approach was pioneered byStone (1974) and has recently been applied by several authors to European financial corporations, includingOertmann et al (2000) andCzaja et al (2009aCzaja et al ( , 2009b. However, because in many countries (including Germany) most banks are not listed, this approach to analysing the interest rate risk is not universally applicable for supervisory purposes.…”
This paper analyses the robustness of the standardised framework proposed by the Basel Committee on Banking Supervision (2004b) to quantify the interest rate risk of banks. We generalise this framework and study the change in the estimated level of interest rate risk if the strict assumptions of the standardised framework are violated. Using data on the German universal banking system, we find that estimates of the interest rate risk are very sensitive to the framework's assumptions. We conclude that the results obtained using the standardised framework in its current specification should be treated with caution when used for supervisory and risk management purposes.
“…This approach was pioneered by Stone (1974) and has recently been applied by several authors to European financial corporations, including Oertmann et al . (2000) and Czaja et al . (2009a, 2009b).…”
mentioning
confidence: 95%
“…7 There are also numerous models and papers that analyse the interest rate sensitivity of (exchange-traded) banks based on stock returns rather than on accounting-based regulatory data. This approach was pioneered byStone (1974) and has recently been applied by several authors to European financial corporations, includingOertmann et al (2000) andCzaja et al (2009aCzaja et al ( , 2009b. However, because in many countries (including Germany) most banks are not listed, this approach to analysing the interest rate risk is not universally applicable for supervisory purposes.…”
This paper analyses the robustness of the standardised framework proposed by the Basel Committee on Banking Supervision (2004b) to quantify the interest rate risk of banks. We generalise this framework and study the change in the estimated level of interest rate risk if the strict assumptions of the standardised framework are violated. Using data on the German universal banking system, we find that estimates of the interest rate risk are very sensitive to the framework's assumptions. We conclude that the results obtained using the standardised framework in its current specification should be treated with caution when used for supervisory and risk management purposes.
“…Adjustment of all benchmark rates can affect a stock price. For example, the investment value of a security may decrease during an increasing period, bringing about stock price dropping; in the contrary situation, the result shows an opposite direction [8]. Numerous empirical studies exist on the potential influence of inflation/level of GDP on the evolution of the assets' price (see Weale and Wieladek [9] for a recent analysis of these aspects).…”
The informational context is regularly questioned in a transitional economic regime like the one implemented in China or Vietnam. This article investigates this issue and the predictive power of fundamental analysis in such context and more precisely in a Chinese context with an analysis of 3 different industries (media, power, and steel). Through 3 different kinds of correlation, we examine 25 financial determinants for 60 Chinese listed companies between 2011 and 2015. Our results show that fundamental analysis can effectively be used as an investment tool in transitional economic context. Contrasting with the EMH for which the accounting information is instantaneously integrated into the financial information (stock prices), our study suggests that these two levels of information are not synchronized in China opening therefore a door for a fundamental analysis based prediction. Furthermore, our results also indicate that accounting information illustrates quite well the economic reality since financial reports in each industry can disclose a part of stock value information in line with the economic situation of the industry under consideration.
“…The study confirmed that stock returns are partially predictable while rejecting the random walk model. In another study, Czaja and Scholz (2009) examined the sensitivity of German stock returns to interest rate changes and concluded that the industry curvature and, to a lesser extent, the slope of the term structure, are useful in predicting variations in stock returns. The study also found that interest rate risk was of greater relevance for financial institutions than non-financial institutions.…”
Section: Introduction and Literature Reviewmentioning
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