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Interest Rate and Foreign Exchange Sensitivity of Bank Stock Returns: Evidence from China

Author

Listed:
  • Xiangnan Meng

    (University of South Australia, Australia)

  • Xin Deng

    (University of South Australia, Australia)

Abstract

This study employs a GARCH model to investigate the effects of interest rate and foreign exchange rate changes on Chinese banks’ stock returns. The results suggest that market movement and foreign exchange rate changes are statistically significant in explaining banks’ stock returns, despite different reactions from different bank portfolios in regard to risks. Interest rate fluctuations, on the other hand, appear to be insignificant factors in equity pricing. The results confirm the link between market risks and stock returns and highlight the need for further interest rate liberalization.

Suggested Citation

  • Xiangnan Meng & Xin Deng, 2013. "Interest Rate and Foreign Exchange Sensitivity of Bank Stock Returns: Evidence from China," Multinational Finance Journal, Multinational Finance Journal, vol. 17(1-2), pages 77-106, March - J.
    • Handle: RePEc:mfj:journl:v:17:y:2013:i:1-2:p:77-106
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    More about this item

    Keywords

    risks; GARCH; banking industry; China;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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