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Assets Pricing and Equity Duration Paradox

Author

Listed:
  • Raja Rehan
  • Imran Umer Chhapra
  • Ali Zain

Abstract

We used the co-integration approach and panel unit root test to estimate banks’ equity duration in Pakistan, India, China, Australia, the UK and the US from 1992 to 2017. The results showed that the highest duration is in the UK and Chinese banks then the US and Indian banks followed by the banks in Pakistan and Australia. These results have important implications for policymakers particularly because banks act as channels for monetary policy. Since duration is a measure of sensitivity to interest rates, these results imply that the UK and Chinese banks would be the most affected by monetary policy changes while those in Pakistan and Australia would be the least affected. Since duration also measures the speed by which cash flows come back, these results indicate that investors in Pakistan and Australia banks recover their investments faster than investors in the Indian, US, Chinese and UK banks. Therefore, banks in Australia and Pakistan are the most profitable while those in the UK and China are the least profitable.

Suggested Citation

  • Raja Rehan & Imran Umer Chhapra & Ali Zain, 2019. "Assets Pricing and Equity Duration Paradox," Humanities and Social Sciences Letters, Conscientia Beam, vol. 7(3), pages 167-180.
    • Handle: RePEc:pkp:hassle:v:7:y:2019:i:3:p:167-180:id:827
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