Derivative activities and Asia-Pacific banks' interest rate and exchange rate exposures
In this paper, we investigate whether the level of derivative activities of Asia-Pacific banks is associated with the market's perception of their interest rate and exchange rate risks. The results suggest that the level of derivative activities (especially interest rate derivatives) is positively associated with long-term interest rate exposure (LTIR) but negatively associated with short-term interest rate exposure (STIR). Further investigations reveal that the positive LTIR exposures are driven by banks with extensive derivative activities. We do not find any significant association between banks' derivative activities and exchange rate exposure. The significant positive association between the level of derivative activities and LTIR suggests the need for better management of banks' internal control systems and/or greater derivative disclosure requirements to bring stronger market discipline to banks, particularly for banks with extensive derivative activities.
Volume (Year): 19 (2009)
Issue (Month): 1 (February)
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/intfin|
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.:
- Beverly J. Hirtle, 1996.
"Derivatives, Portfolio Composition and Bank Holding Company Interest Rate Risk Exposure,"
Center for Financial Institutions Working Papers
96-43, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Beverly Hirtle, 1997. "Derivatives, Portfolio Composition, and Bank Holding Company Interest Rate Risk Exposure," Journal of Financial Services Research, Springer, vol. 12(2), pages 243-266, October.
- Hentschel, Ludger & Kothari, S. P., 2001. "Are Corporations Reducing or Taking Risks with Derivatives?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(01), pages 93-118, March.
- Allayannis, George & Ofek, Eli, 2001. "Exchange rate exposure, hedging, and the use of foreign currency derivatives," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 273-296, April.
- Chaudhry, Mukesh K. & Christie-David, Rohan & Koch, Timothy W. & Reichert, Alan K., 2000. "The risk of foreign currency contingent claims at US commercial banks," Journal of Banking & Finance, Elsevier, vol. 24(9), pages 1399-1417, September.
- Jongmoo Choi & Elyas Elyasiani, 1997. "Derivative Exposure and the Interest Rate and Exchange Rate Risks of U.S. Banks," Journal of Financial Services Research, Springer, vol. 12(2), pages 267-286, October.
- Donald R. Fraser, 2002. "Sources of Bank Interest Rate Risk," The Financial Review, Eastern Finance Association, vol. 37(3), pages 351-367, 08.
- Hentschel, Ludger & Smith, Clifford Jr., 1997. "Derivatives regulation: Implications for central banks," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 305-346, October.
- Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-53, September.
- Sung C. Bae, 1990. "Interest Rate Changes And Common Stock Returns Of Financial Institutions: Revisited," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 13(1), pages 71-79, 03.
- SinkeyJr., Joseph F. & Carter, David A., 2000. "Evidence on the financial characteristics of banks that do and do not use derivatives," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(4), pages 431-449.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Jeff Madura & Emilio R. Zarruk, 1995. "Bank Exposure To Interest Rate Risk: A Global Perspective," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(1), pages 1-13, 03.
- Demsetz, Rebecca S & Strahan, Philip E, 1997. "Diversification, Size, and Risk at Bank Holding Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 300-313, August.
- Faff, R. W. & Howard, P. F., 1999. "Interest rate risk of Australian financial sector companies in a period of regulatory change," Pacific-Basin Finance Journal, Elsevier, vol. 7(1), pages 83-101, February.
- Dekle, Robert, 1998. "The Japanese "Big Bang" financial reforms and market implications," Journal of Asian Economics, Elsevier, vol. 9(2), pages 237-249.
- Chamberlain, Sandra & Howe, John S. & Popper, Helen, 1997. "The exchange rate exposure of U.S. and Japanese banking institutions," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 871-892, June.
When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:19:y:2009:i:1:p:16-32. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.