Article ID Journal Published Year Pages File Type
983617 The Quarterly Review of Economics and Finance 2006 17 Pages PDF
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.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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