Interest Rate Risk and the Cross-Section of Stock Returns

2012 ◽  
Author(s):  
Abraham Lioui ◽  
Paulo F. Maio
Keyword(s):  
Interest Rate ◽  
Stock Returns ◽  
Cross Section ◽  
Interest Rate Risk ◽  
Rate Risk ◽  
The Cross

Interest Rate Risk and the Cross Section of Stock Returns

2014 ◽  
Vol 49 (2) ◽  
pp. 483-511 ◽  
Author(s):  
Abraham Lioui ◽  
Paulo Maio
Keyword(s):  
Asset Pricing ◽  
Interest Rate ◽  
Stock Returns ◽  
Cross Section ◽  
Interest Rate Risk ◽  
Pricing Model ◽  
Nested Models ◽  
Asset Pricing Model ◽  
Rate Risk ◽  
The Cross

AbstractWe derive a macroeconomic asset pricing model in which the key factor is the opportunity cost of money. The model explains well the cross section of stock returns in addition to the excess market return. The interest rate factor is priced and seems to drive most of the explanatory power of the model. In this model, both value stocks and past long-term losers enjoy higher average (excess) returns because they have higher interest rate risk than growth/past winner stocks. The model significantly outperforms the nested models (capital asset pricing model (CAPM) and consumption CAPM (CCAPM)) and compares favorably with alternative macroeconomic models.

scholarly journals PENGARUH RISIKO INFLASI, RISIKO SUKU BUNGA, RISIKO VALUTA ASING TERHADAP RETURN SAHAM

SIMAK ◽  
2021 ◽  
Vol 19 (01) ◽  
pp. 52-68
Author(s):  
Olivia Luthfiah Mufida ◽  
Gusganda Suria Manda
Keyword(s):  
Interest Rate ◽  
Stock Returns ◽  
Foreign Exchange ◽  
Interest Rate Risk ◽  
Negative Influence ◽  
Foreign Exchange Risk ◽  
Inflation Risk ◽  
Rate Risk ◽  
Exchange Risk ◽  
The Relationship

This research was conducted to show the importance of company managers in managing stock returns during inflation, increases in interest rates, and increases in foreign exchange rates. The purpose of this study is to analyze the effect of inflation risk, interest rate risk, and foreign exchange risk on stock returns, 2012-2019 study period. The method in this research is using multiple linear regression analysis. Techniques in conducting this research using quantitative descriptive analysis and obtained 8 companies as research samples. The results of this study indicate that inflation risk has an insignificant effect and the relationship is partially positive influence on stock returns, interest rate risk has no significant effect and partially negative influence on stock returns, foreign exchange risk has a significant effect and the relationship is negative influence significantly partial to stock returns. This research is inseparable from the limitations of the researcher. For investors and potential investors who want to invest, it is better if they pay more attention to the company's financial condition so that investors can find out whether it is feasible or not to invest in the chosen company so that investors do not experience losses.

scholarly journals Interest Rate Risk Rewards in Stock Returns of Financial Corporations: Evidence from Germany

2010 ◽  
Vol 16 (1) ◽  
pp. 124-154 ◽  
Author(s):  
Marc-Gregor Czaja ◽  
Hendrik Scholz ◽  
Marco Wilkens
Keyword(s):  
Interest Rate ◽  
Stock Returns ◽  
Interest Rate Risk ◽  
Rate Risk

scholarly journals Interest Rate Sensitivity of Non-banking Financial Sector in India

2018 ◽  
Vol 43 (3) ◽  
pp. 152-170
Author(s):  
Renu Ghosh ◽  
K. Latha ◽  
Sunita Gupta
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Stock Returns ◽  
Financial Institutions ◽  
Rate Sensitivity ◽  
Interest Rate Risk ◽  
Cross Sectional ◽  
Rate Risk ◽  
The Interest Rate ◽  
The Impact

Executive Summary Before financial liberalization, interest rates were administered and exhibited near-zero volatility. The easing of financial repression in the 1990s generated experiences with interest rate volatility in India. Administrative restrictions on interest rates in India have been steadily eased since 1993. This has led to increased interest rate risk for financial firms. Most research studies have almost exclusively focused on the developed countries especially the banking sector of the United States. The present study attempts to examine the interest rate risk of non-banking financial institutions in India by using the methodology of panel regression and generalized autoregressive conditional heteroscedasticity (GARCH) (1, 1) model for the period from 1 April 1996 to 30 August 2014. The sample used in the study consists of all non-banking financial companies (NBFCs) listed in the S&P CNX 500 index which has continuous availability of share prices over the study period. The study also examines the impact of unanticipated changes in interest rate on stock returns of NBFCs. The Box–Jenkins methodology is applied to calculate unanticipated changes in interest rate variable, autoregressive integrated moving average (ARIMA) (24, 1, 0) model. The time series used in the present study is found to be stationary at the first logarithmic difference. Stock returns exhibit significant exposure with both market returns and interest rate changes. The interest rate sensitivity of large, medium, and small financial institutions is also found to be different. Estimation results for the variance equation in GARCH (1, 1) model suggest that the volatility for individual firm stock returns is time-variant. The ARCH and GARCH coefficients are found to be significant, providing evidence against using traditional model (ordinary least square (OLS)) that assumes time-invariant volatility. This implies that the market has a memory longer than one period and volatility is more sensitive to its own lagged values than it is to new surprises in the market. This study also investigates the possible determinants that account for cross-sectional variation in the interest rate sensitivity of NBFCs. It is found that the size of the firm is the preferred determinant that accounts for cross-sectional variation in the interest rate sensitivity of finance companies. When unanticipated changes in interest rate are used in lieu of actual interest rate changes, not much difference is observed in the significance coefficients. The only significant difference observed is in the magnitude. The impact of actual interest rate changes is more than the impact of unanticipated interest rate changes in absolute terms. This difference in the magnitude of impact arises because actual data incorporate movement in both anticipated and unanticipated components of interest rate. Hence, NBFCs managers and regulators should adopt policies and strategies to avoid the transmission of interest rate risk in their stock returns.

scholarly journals The sensitivity of GCC firms’ stock returns to exchange rate, interest rate, and oil price volatility

2020 ◽  
Vol 17 (4) ◽  
pp. 35-50
Author(s):  
Mariam Alenezi ◽  
Ahmad Alqatan ◽  
Obby Phiri
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Returns ◽  
Price Volatility ◽  
Interest Rate Risk ◽  
Oil Price ◽  
Exchange Rate Risk ◽  
Oil Price Volatility ◽  
Gcc Countries ◽  
Rate Risk

This study seeks to investigate the sensitivity of stock returns to exchange rate, interest rate and oil price volatility in the Gulf Cooperation Council (GCC) countries. It employs both the multivariate ordinary least square (OLS) regression and the exponential generalized autoregressive conditional heteroscedastic in mean (EGARCH-M) models to analyse the data collected from Bloomberg and DataStream on the GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) for the period January 2007 to June 2012. The study shows that stock returns in GCC countries are influenced by the exchange rate risk, interest rate risk and oil price risk. However, the exposure is highest for exchange rate risk and lowest for interest rate risk. While the effects of these risks were mixed, overall, exchange rate risk and oil price risk showed a positive and significant relationship as compared to the interest rate risk that showed a negative significant effect on firm values. The level of the effect of these risks also differed from country to country. Further, foreign operations and firm size had a significant influence on the extent of the firms’ exposure to all three risks. The study findings suggest that the volatility of stock returns affected by changes in the risk factors could indicate non-prioritisation of risk management by firms. This has implications in terms of consideration of the long-term exposure of firms to these three risks and thus, the need for effective risk management strategies.

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