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Time-Varying Market, Interest Rate and Exchange Rate Risk in Australian Bank Portfolio Stock Returns: A Garch-M Approach

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Author Info
Susan Ryan
Andrew C. Worthington
Abstract

This study employs an extended version of the Generalised Autoregressive Conditional Heteroskedasticity in Mean (GARCH-M) model to consider the time-series sensitivity of Australian bank stock returns to market, interest rate and foreign exchange rate risks. Daily Australian bank portfolio returns, a market wide accumulation index, short, medium and long-term interest rates, and a trade-weighted foreign exchange index are used to model these risks over the period 1996 to 2001. The results suggest that market risk is an important determinant of bank stock returns, along with short and medium term interest rate levels and their volatility. However, long-term interest rates and the foreign exchange rate do not appear to be significant to the Australian bank return generating process over the period considered.

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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 112.

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Date of creation: 20 Jun 2002
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Handle: RePEc:qut:dpaper:112

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Related research
Keywords: Bank stock returns; GARCH; market risk; interest rate risk; foreign exchange risk;

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eric Wong & Jim Wong & Phyllis Leung, 2008. "The Foreign Exchange Exposure of Chinese Banks," Working Papers 0807, Hong Kong Monetary Authority. [Downloadable!]
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