Risk Characteristics of Banks and Non-Banks: An International Comparison

Bessler, Wolfgang; Murtagh, James P.

doi:10.1007/978-3-7908-2651-7_5

Cited by 9 publications

(4 citation statements)

References 29 publications

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“…In fact, the economic intuition for exposures to interest rate risk, credit risk, sovereign risk, and real estate risk differ substantially between banks and industrial firms (Bessler and Murtagh, 2004). For the banking industry, these risks represent systematic risk factors because they are directly associated with banks' risk transformation activities and their asset and liability positions.…”

Section: Bank Risk Exposuresmentioning

confidence: 99%

Time-varying systematic and idiosyncratic risk exposures of US bank holding companies

Bessler

Kurmann

Nohel

2015

Journal of International Financial Markets, Institutions and Mo

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Section: Bank Risk Exposuresmentioning

confidence: 99%

Time-varying systematic and idiosyncratic risk exposures of US bank holding companies

Bessler

Kurmann

Nohel

2015

Journal of International Financial Markets, Institutions and Mo

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“…Although some authors find no or at the most weak evidence of this interest rate sensitivity and assume this finding to result in part from a prevalent use of interest rate risk management tools (see, e.g., Allen and Jagtiani, 1997, and Maher, 1997), a significant interest rate sensitivity has been mostly confirmed in other recent empirical studies. These include Madura and Zarruk (1995), Oertmann et al (2000), and Bessler and Murtagh (2004), who compare the interest rate sensitivity of financial institutions in an international context; Faff and Howard (1999) for Australia; Dinenis and Staikouras (1998, 2000) for the UK; Elyasiani and Mansur (1998, 2004), Tai (2000), Fraser et al (2002), and Brewer et al (2007) for the USA, and, for the German stock market also investigated in this paper, Bartram (2002), Bessler and Opfer (2003, 2005), Behr and Sebastian (2006), and Scholz et al (2008).…”

Section: Introductionmentioning

confidence: 99%

“…(2002). Other studies including, e.g., Bessler and Murtagh (2004) employ bond returns as the interest rate factor. While this approach to specify the interest rate factor does not allow one to interpret the regression coefficient in terms of duration, Scholz et al .…”

mentioning

confidence: 99%

Interest Rate Risk Rewards in Stock Returns of Financial Corporations: Evidence from Germany

Czaja¹,

Scholz²,

Wilkens³

2009

Euro Fin Management

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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 these assetspecific benchmarks, we find: i) Regardless of the industry considered, the interest rate risk benchmarks of German corporations have mostly earned a significantly positive reward. ii) Returns of interest rate risk benchmarks of financial institutions exceeded significantly those of non-financial corporations. iii) An investor willing to bear nothing but the average interest rate risk of German financial institutions would have earned a mean return of about or even exceeding 70% of the corresponding total stock returns. iv) Returns of the interest rate risk benchmarks of the German insurance sectorThe helpful comments of the editor are acknowledged with thanks. We especially thank an anonymous referee for several comments and suggestions that have significantly improved the paper. All remaining errors are our own. Correspondence: Hendrik Scholz. 125were significantly higher than those of German banks, which seems to contradict conventional market wisdom that insurances hedge interest rate risks.

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“…Following studies have used different approaches to measure the sensitivity of bank stock returns to variables other than the market risk premium such as interest rate risk, credit risk, real-estate risk, exchange rate risk, etc. (Lynge and Zumwalt, 1980;Flannery and James, 1984;Kane and Unal, 1988;Choi et al, 1992;Bessler and Booth, 1994;Allen et al, 1995;Mei and Saunders, 1995;Choi and Elyasiani, 1997;Chamberlain et al, 1997;Demsetz and Strahan, 1997;Hess and Laisathit, 1997;Dewenter and Hess, 1998;Oertmann et al, 2000;Bessler and Murtagh, 2004;Martins et al, 2012;Gounopoulos et al, 2013). They conclude that even if these additional factors somehow matter, being related to the traditional operations of financial intermediaries, they do not allow us to build a multifactor equilibrium model able to reward banks' non-diversifiable risk factors.…”

Section: Literature Reviewmentioning

confidence: 99%

Size and Value Anomalies in European Bank Stocks

Fidanza¹,

Morresi²

2018

IJBM

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The Fama-French three-factor model (Fama & French, 1993) has been subject to extensive testing on samples of US and European nonfinancial firms over several time windows. The most accepted evidence is that size premium (SMB) and value premium (HML) other than the market risk premium help explain cross-section and time-series changes in stock returns. However, scholars have always paid little attention to the financial industry because of the intrinsic differences between financial and nonfinancial firms. The few studies that tested the model on financial firms found mixed evidence on the role of size and book-to-market ratio (B/M) in explaining stock returns. This paper tries to bridge the gap by testing the model on a sample of European financial firms. We find that size and B/M factors seem to be sources of undiversifiable risks and should therefore be included as risk premiums for estimating expected returns of financial firms. Small and high-B/M firms show higher returns that are not explained by market risk and the inclusion of SMB and HML helps improve the regression models’ goodness-of-fit.

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Risk Characteristics of Banks and Non-Banks: An International Comparison

Cited by 9 publications

References 29 publications

Time-varying systematic and idiosyncratic risk exposures of US bank holding companies

Time-varying systematic and idiosyncratic risk exposures of US bank holding companies

Interest Rate Risk Rewards in Stock Returns of Financial Corporations: Evidence from Germany

Size and Value Anomalies in European Bank Stocks

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