The Sensitivity of Bank Stock Return to Interest Rate, Exchange Rate Volatiltty in Canada

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Title: The Sensitivity of Bank Stock Return to Interest Rate, Exchange Rate Volatiltty in Canada
Authors: Huo, Meng
Date: 2012
Abstract: The paper examines the sensitivity of commercial bank stock returns to market return, interest rate return and foreign exchange return by using Canadian daily data from 2007 to 2011. The Impact of interest rate and foreign exchange rate volatility on bank stock returns are estimated as well. By conducting OLS and two types of GARCH models we found that OLS model is inefficient is estimating the sensitivity of bank stock return due to the ARCH effects among the variables,GARCH type models are moe suitable to estimate data with time-varying characteristics. Since the financial crisis happens during this period, an improvement is made by adding a dummy variable. The result found by this paper is that market return plays an important role in determining the return of bank stocks. Interest rate return and foreign exchange rate return have impact on bank stock return as well. The increase in volatility of exchange rate will generally lead to an increase in bank stock return volatility as well. This result provides empirical support for the investors, bank managers as well as policy makers.
URL: http://hdl.handle.net/10393/23738
CollectionScience économique - Mémoires // Economics - Research Papers
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