tailieunhanh - The Exchange Rate Exposure of U.S. and Japanese Banking Institutions

A popular approach to measuring the interest-rate risk exposure of a bank is to run regressions of the bank’s stock return on a risk factor, such as an interest rate. The regression coefficient on the interest rate — often referred to as the interest-rate beta, is a measure of the bank’s average exposure to interest rate changes over the sample period considered (Flannery and James 1984a). Interest rate betas do not tell us where the bank’s exposure comes from, that is, what positions generate it. This issue has been investigated by relating interest rate betas to summary statistics of bank positions. For example, interest rate betas have. | Wharton Financial Institutions Center The Exchange Rate Exposure of . and Japanese Banking Institutions by Sandra Chamberlain John S. Howe Helen Popper 96-55 The Wharton School University of Pennsylvania THE WHARTON FINANCIAL INSTITUTIONS CENTER The Wharton Financial Institutions Center provides a multi-disciplinary research approach to the problems and opportunities facing the financial services industry in its search for competitive excellence. The Center s research focuses on the issues related to managing risk at the firm level as well as ways to improve productivity and performance. The Center fosters the development of a community of faculty visiting scholars and . candidates whose research interests complement and support the mission of the Center. The Center works closely with industry executives and practitioners to ensure that its research is informed by the operating realities and competitive demands facing industry participants as they pursue competitive excellence. Copies of the working papers summarized here are available from the Center. If you would like to learn more about the Center or become a member of our research community please let us know of your interest. Anthony M. Santomero Director The Working Paper Series is made possible by a generous grant from the Alfred P. Sloan f oundalion The Exchange Rate Exposure of . and Japanese Banking Institutions 1 First Version July 1996 Abstract In this paper we examine the foreign exchange exposure of a sample of U. S. and Japanese banking firms. Using daily data we construct estimates of the exchange rate sensitivity of the equity returns of the . bank holding companies and compare them to those of the Japanese banks. We find that the stock returns of a significant fraction of the U. S. companies move with the exchange rate while few of the Japanese returns that we observe do so. We next examine more closely the sensitivity of the . firms by linking the . estimates cross-sectionally