IDEAS home Printed from https://ideas.repec.org/a/jre/issued/v10n21995p129-140.html
   My bibliography  Save this article

Commercial Bank Exposure and Sensitivity to the Real Estate Market

Author

Abstract

In this study, we assess the balance sheet exposure of commercial banks to the real estate market, and develop a hypothesis on the potential systematic effects of real estate conditions across banks. By applying a seemingly unrelated regression (SUR) model to bank portfolios, we test for the relation between bank values and a real estate market proxy after controlling for general market and interest-rate conditions. We find a positive relationship between monthly bank returns and the real estate index, even after accounting for general market and interest-rate movements. The sensitivity of bank values to the real estate market has increased over time, and the bank-specific sensitivity coefficient is positively related to the bank's balance sheet exposure to real estate.

Suggested Citation

  • Marcus T. Allen & Jeff Madura & Kenneth J. Wiant, 1995. "Commercial Bank Exposure and Sensitivity to the Real Estate Market," Journal of Real Estate Research, American Real Estate Society, vol. 10(2), pages 129-140.
  • Handle: RePEc:jre:issued:v:10:n:2:1995:p:129-140
    as

    Download full text from publisher

    File URL: http://pages.jh.edu/jrer/papers/pdf/past/vol10n02/v10p129.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Joe Peek & Eric S. Rosengren, 1994. "Bank Real Estate Lending and the New England Capital Crunch," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(1), pages 33-58.
    2. Lynge, Morgan J. & Zumwalt, J. Kenton, 1980. "An Empirical Study of the Interest Rate Sensitivity of Commercial Bank Returns: A Multi-Index Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(03), pages 731-742, September.
    3. 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 1141-1153, September.
    4. Liu, Crocker H. & Hartzell, David J. & Greig, Wylie & Grissom, Terry V., 1990. "The Integration of the Real Estate Market and the Stock Market: Some Preliminary Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 3(3), pages 261-282, September.
    5. Madura, Jeff & Tucker, Alan L. & Zarruk, Emilio, 1992. "Reaction of bank share prices to the Third-World debt reduction plan," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 853-868, September.
    6. Ross, Stephen A & Zisler, Randall C, 1991. "Risk and Return in Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 175-190, June.
    7. Willard McIntosh & Youguo Liang & Daniel L. Tompkins, 1991. "An Examination of the Small-Firm Effect within the REIT Industry," Journal of Real Estate Research, American Real Estate Society, vol. 6(1), pages 9-18.
    8. S. Michael Giliberto, 1990. "Equity Real Estate Investment Trusts and Real Estate Returns," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 259-264.
    9. Bae, Sung C, 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, Spring.
    10. John D. Martin & Douglas O. Cook, 1991. "A Comparison of the Recent Performance of Publicly Traded Real Property Portfolios and Common Stock," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(2), pages 184-212.
    11. Brent W. Ambrose & Esther Ancel & Mark D. Griffiths, 1992. "The Fractal Structure of Real Estate Investment Trust Returns: The Search for Evidence of Market Segmentation and Nonlinear Dependency," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(1), pages 25-54.
    12. repec:bla:joares:v:21:y:1983:i:1:p:184-221 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Steven Ongena, 1999. "Lending Relationships, Bank Default and Economic Activity," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 257-280.
    2. António Miguel Martins & Ana Paula Serra & Francisco Vitorino Martins, 2016. "Real estate market risk in bank stock returns: evidence for 15 European countries," International Journal of Strategic Property Management, Taylor & Francis Journals, vol. 20(2), pages 142-155, June.
    3. Erjona REBI, 2016. "The relevance of the housing market for the banks’ risk profile in Albania," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 7, pages 151-168, June.
    4. Lucia Gibilaro & Gianluca Mattarocci, 2016. "Are Real Estate Banks More Affected by Real Estate Market Dynamics?," International Real Estate Review, Asian Real Estate Society, vol. 19(2), pages 151-170.
    5. Bessler, Wolfgang & Kurmann, Philipp & Nohel, Tom, 2015. "Time-varying systematic and idiosyncratic risk exposures of US bank holding companies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 35(C), pages 45-68.
    6. Bessler, Wolfgang & Kurmann, Philipp, 2014. "Bank risk factors and changing risk exposures: Capital market evidence before and during the financial crisis," Journal of Financial Stability, Elsevier, vol. 13(C), pages 151-166.
    7. Wen-Chieh Wu & Chin-Oh Chang & Zekiye Selvili, 2003. "Banking System, Real Estate Markets, and Nonperforming Loans," International Real Estate Review, Asian Real Estate Society, vol. 6(1), pages 43-62.
    8. Carsten Lausberg, 2001. "Evidence of its Importance and Instruments to Handle it. The Real Estate Market Risk of Banks," ERES eres2001_205, European Real Estate Society (ERES).
    9. António Miguel Martins & Ana Paula Serra & Francisco Vitorino Martins & Simon Stevenson, "undated". "Residential Property Loans and Bank Performance during Property Price Booms: Evidence from Europe," Real Estate & Planning Working Papers rep-wp2014-05, Henley Business School, Reading University.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jre:issued:v:10:n:2:1995:p:129-140. 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: (JRER Graduate Assistant/Webmaster). General contact details of provider: http://www.aresnet.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.