An investigation of the impact of interest rates and interest rate volatility on Australian financial sector stock return distributions

Faff, Robert W., Hodgson, Allan and Kremmer, Michael L. (2005) An investigation of the impact of interest rates and interest rate volatility on Australian financial sector stock return distributions. Journal of Business Finance and Accounting, 32 5/6: 1001-1031. doi:10.1111/j.0306-686X.2005.00620.x


Author Faff, Robert W.
Hodgson, Allan
Kremmer, Michael L.
Title An investigation of the impact of interest rates and interest rate volatility on Australian financial sector stock return distributions
Journal name Journal of Business Finance and Accounting   Check publisher's open access policy
ISSN 0306-686X
1468-5957
Publication date 2005-06
Sub-type Article (original research)
DOI 10.1111/j.0306-686X.2005.00620.x
Volume 32
Issue 5/6
Start page 1001
End page 1031
Total pages 31
Place of publication Oxford, United Kingdom
Publisher Wiley-Blackwell Publishing
Language eng
Abstract This paper extends the existing literature by analysing the dual impact of changes in the interest rate and interest rate volatility on the distribution of Australian financial sector stock returns. In addition, a multi-variate GARCH-M model is used to analyse the impact of deregulation on the financial institutions sector. It was found that there is a consistent intertemporal trade off between risk and return over the different regulatory periods. Moreover, finance corporations were found to be highly sensitive to new shocks across the financial sector and deregulation increased the risk faced by finance corporations and small banks - effectively increasing the required rate of return and explaining the continued rationalisation of these sectors. Furthermore, deregulation has changed the fundamental relationship between interest rates and large bank stock excess returns from positive in the pre-deregulation period to negative in the post-deregulation period. This reflects the changing institutional environment from one of controlled credit rationing to a more competitive environment. © Blackwell Publishing Ltd. 2005.
Keyword Interest rate risk
Australian financial sector
Regulatory change
GARCH-M
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: UQ Business School Publications
 
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Created: Wed, 02 Mar 2011, 10:13:08 EST by Karen Morgan on behalf of UQ Business School