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Innovations in Interest Rates, Duration Transformation, and Bank Stock Returns

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  • Akella, Srinivas R
  • Greenbaum, Stuart I
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    Abstract

    This paper studies the cross-sectional variation in the sensitivity of bank stock returns to interest-rate innovations. An econometric framework is developed to estimate the mismatch between asset and liability durations. The innovation sensitivity is then related to duration transformation. The results indicate that banks are exposed to interest-rate risk and that the innovation sensitivity is positively related to duration transformation. Copyright 1992 by Ohio State University Press.

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 24 (1992)
    Issue (Month): 1 (February)
    Pages: 27-42

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    Handle: RePEc:mcb:jmoncb:v:24:y:1992:i:1:p:27-42

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Lumpkin, Stephen A. & O'Brien, James M., 1997. "Thrift stock returns and portfolio interest rate sensitivity," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 341-357, July.
    2. Adjaoud, Fodil & Rahman, Abdul, 1996. "A note on the temporal variability of Canadian financial services stock returns," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 165-177, January.
    3. Bessler, Wolfgang & Nohel, Tom, 2000. "Asymmetric information, dividend reductions, and contagion effects in bank stock returns," Journal of Banking & Finance, Elsevier, vol. 24(11), pages 1831-1848, November.
    4. Dia, Enzo, 2013. "How do banks respond to shocks? A dynamic model of deposit-taking institutions," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3623-3638.
    5. Lajeri, Fatma & Dermine, Jean, 1999. "Unexpected inflation and bank stock returns: The case of France 1977-1991," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 939-953, June.
    6. Bharati, Rakesh & Nanisetty, Prasad & So, Jacky, 2006. "Dynamic gap transformations: Are banks asset - transformers or brokers? or both?," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(1), pages 36-52, February.
    7. Andreasen, Martin & Ferman, Marcelo & Zabczyk, Pawel, 2012. "The business cycle implications of banks’ maturity transformation," Bank of England working papers 446, Bank of England.
    8. Gloria M. Soto Pacheco & Cristóbal González & Laura Ballester & Román Ferrer, 2009. "Determinants of interest rate exposure of Spanish banking industry," Working Papers. Serie EC 2009-07, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    9. Barua, Samir K. & Ragunathan V & Varma, Jayanth R., . "Research on the Indian Capital Market: A Review," IIMA Working Papers WP1994-02-01_01242, Indian Institute of Management Ahmedabad, Research and Publication Department.
    10. Michael Isimbabi & Alan Tucker, 1997. "The market perception of banking industry risk: A multifactor analysis," Atlantic Economic Journal, International Atlantic Economic Society, vol. 25(1), pages 99-112, March.
    11. Paul, Satya & Mallik, Girijasankar, 2003. "Macroeconomic Factors and Bank and Finance Stock Prices: The Australian Experience," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 33(1), pages 23-30, March.
    12. Papadamou, Stephanos & Siriopoulos, Costas, 2014. "Interest rate risk and the creation of the Monetary Policy Committee: Evidence from banks’ and life insurance companies’ stocks in the UK," Journal of Economics and Business, Elsevier, vol. 71(C), pages 45-67.
    13. Saporoschenko, Andrew, 2002. "The sensitivity of Japanese bank stock returns to economic factors: An examination of asset/liability differences and main bank status," Global Finance Journal, Elsevier, vol. 13(2), pages 253-270.

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