Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
983617 | The Quarterly Review of Economics and Finance | 2006 | 17 Pages |
Abstract
We study the sensitivity of bank stock returns to interest rates, by extending existing tests in two important directions. We incorporate dynamic gap adjustments and extend the traditional duration gap measure to new gap measures based on the general equilibrium term structure model developed by Longstaff and Schwartz [Longstaff, F. A., & Schwartz, E. S. (1992). Interest-rate volatility and the term structure: A two-factor general equilibrium model. Journal of Finance, 47(4), 1259–1282]. Consistent with previous studies, the results indicate that banks hedge against changes in interest rate levels, when the levels are low, and speculate when the levels are high, but the volatility is low.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Rakesh Bharati, Prasad Nanisetty, Jacky So,