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Bank Holding Company Risk from 1976-1989 with a Two-Factor Model

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  • Maher, Matt

Abstract

This paper employs a two-factor model of security returns to investigate the intertemporal risk of bank holding company stock returns over the 1976-1989 period. Uniquely, the two-factor model is estimated in separate regressions for each of the fourteen years between 1976 and 1989, thus exposing intertemporal changes in the model coefficients. The results show that bank holding companies have increased in risk over the sample period and also reveal that much of the controversy over the two-index model stems from the transitory nature of the interest rate coefficient through time, making long time series groupings of data misspecified. The above holds for both short-term and long-term interest rates. Interest rates have little impact on bank returns. Copyright 1997 by MIT Press.

Suggested Citation

  • Maher, Matt, 1997. "Bank Holding Company Risk from 1976-1989 with a Two-Factor Model," The Financial Review, Eastern Finance Association, vol. 32(2), pages 357-371, May.
    • Handle: RePEc:bla:finrev:v:32:y:1997:i:2:p:357-71
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    Cited by:

    1. Duane Graddy & Reuben Kyle & Thomas Strickland & David Bass, 2004. "Dating structural changes: An illustration from financial deregulation," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(2), pages 155-163, June.
    2. Marc†Gregor Czaja & Hendrik Scholz & Marco Wilkens, 2010. "Interest Rate Risk Rewards in Stock Returns of Financial Corporations: Evidence from Germany," European Financial Management, European Financial Management Association, vol. 16(1), pages 124-154, January.
    3. Di Iorio, Amalia & Faff, Robert, 2002. "The pricing of foreign exchange risk in the Australian equities market," Pacific-Basin Finance Journal, Elsevier, vol. 10(1), pages 77-95, January.
    4. Brian Du, 2020. "Securitized banking and interest rate sensitivity," Review of Quantitative Finance and Accounting, Springer, vol. 54(3), pages 851-876, April.

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