An investigation of the interest rate risk and exchange rate risk of the European financial sector: Euro zone versus non-Euro zone countries

Di Iorio, Amalia, Faff, Robert and Sander, Harald (2013) An investigation of the interest rate risk and exchange rate risk of the European financial sector: Euro zone versus non-Euro zone countries. Accounting and Management Information Systems, 12 2: 319-344.

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Name Description MIMEType Size Downloads
Author Di Iorio, Amalia
Faff, Robert
Sander, Harald
Title An investigation of the interest rate risk and exchange rate risk of the European financial sector: Euro zone versus non-Euro zone countries
Journal name Accounting and Management Information Systems
ISSN 1843-8105
Publication date 2013
Sub-type Article (original research)
Volume 12
Issue 2
Start page 319
End page 344
Total pages 26
Place of publication Bucharest, Romania
Publisher Academia de Studii Economice din Bucuresti
Collection year 2014
Language eng
Abstract This paper examines the sensitivity of financial sector stock returns to two risk factors – interest rates (both long-term and short-term) and exchange rates. Specifically we investigate the impact of the European Union and the introduction of the euro on European financial sector risk in the framework of a comparative analysis of financial sector returns across three broad groupings (Banking, Financial Services and Insurance) for a representative group of key euro and non-eurozone countries. Further we investigate the nature of interest rate and exchange rate exposure across increasing time horizons, enabling us to examine both its short and long-term effects on stock returns. Generally, our findings suggest that while Banks are more sensitive to short-term interest rates, the Financial Services and Insurance sectors are more sensitive to long-term interest rates. There is no notable trend in sensitivity pre-/post-euro and differences in terms of the impact of interest rate changes across countries seem to suggest (i) some evidence of integration, and (ii) differences in financial structures and regulation. Further, interest rate sensitivity increases significantly with increasing time intervals. Evidence of exchange rate exposure is weak across all countries and sectors although there is some evidence that it increases with increasing time intervals. Differences in sensitivity can be related to differences in international activities.
Keyword Interest rate risk
Exchange rate risk
European financial sector
Intervaling
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2014 Collection
UQ Business School Publications
 
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Created: Mon, 24 Feb 2014, 09:42:06 EST by Karen Morgan on behalf of UQ Business School