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

  • Susan Ryan
  • Andrew C. Worthington

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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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2002/DP%20No%20112.pdf
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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
Contact details of provider: Postal: GPO Box 2434, BRISBANE QLD 4001
Web page: http://www.bus.qut.edu.au/faculty/economics/
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