tailieunhanh - Interest Rate Risk and Bank Common Stock Returns: Evidence from the Greek Banking Sector

For the data presented on the Bank’s website, the nominal government spot interest rate for n years refers to the interest rate applicable today (‘spot’) on an n year risk-free nominal loan. It is the rate at which an individual nominal cash flow on some future date is discounted to determine its present value. By definition it would be the yield to maturity of a nominal zero coupon bond3 and can be considered as an average of single period rates to that maturity. 4 Conventional dated stocks with a significant amount in issue and having more than three months to maturity, and GC. | Interest Rate Risk and Bank Common Stock Returns Evidence from the Greek Banking Sector Konstantinos Drakos Department of Economics London Guildhall University 31 Jewry Street London EC3N 2EY UK Tel 44 0207 320 3096 Email drakos@ 2 Abstract The paper explores the effect of changes in the long-term interest rate on the common stock returns of banks listed in the Athens Stock Exchange. Two alternative econometric strategies are followed. First in a single equation framework the interest rate sensitivity of stock returns is tested allowing for time-varying conditional volatility. Then pooling information across stocks a system-theoretic approach is employed where explicitly interdependence of stocks is exploited. The findings from both methods were consistent providing evidence for significant sensitivity of bank stock returns to interest rate movements. Working capital was found as the variable that may account for the cross-sectional variation of the interest-rate sensitivities providing evidence for the nominal contracting hypothesis. Keywords APT Bank Common Stock Returns GARCH-modelling Seemingly Unrelated Regressions SURE JEL classification C22 C32 E43 G12 3 1. Introduction Stock returns sensitivity to interest rates was theoretically advocated by Merton 1973 Long 1974 and Stone 1974 . Essentially risk averse investors demand higher compensation for exposure to factors other than the market portfolio that are correlated with intertemporal changes in the investment opportunity set. Merton suggested that the level of market interest rates might provide a proxy for shifts in the investment opportunity set Flannery et. al 1997 . Therefore if a risk averse investor is choosing between two assets giving the same distribution of future wealth but exhibiting differential sensitivity to interest rates in terms of covariance then she will select the portfolio that provides better hedging services against unfavourable movements in interest rates Yourougou 1990 . .

• Ngân hàng - Tín dụng
• Model Selection Tests
• Stem Cell
• Novel Pathogenesis
• Pathogenesis of Endometriosis
• Green Tea
• Tea for Endometriosis
• Artificial intelligence
• Decision making
• Machine learning
• Model selection
• Philosophy of probability
• Tests of stationarity