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The Sensitivity of Banks' Stock Returns to the interest rate risk and exchange rate risk: A Case Study of Germany and South Africa

Kpoti-Mayor, Priscilla Yayra LU and Musimwa, Rutendo Yvonne LU (2022) NEKN02 20221
Department of Economics
Abstract
The purpose of this paper is to interrogate the single and joint effect interest and exchange rate movements have on banks’ stock returns. This study also aims to compare the volatility of the banks’ stock returns for countries in different markets using both the short and long-term interest rate and the respective exchange rates. To conduct our tests, we use a sample of 14 German and 11 South African banks’ stocks listed on the respective stock exchange markets, with daily data spanning from 3rd January 2012 to 30th December 2021. We distinguish the relationship between bank stock and the interest and exchange rate by using Ordinary Least Squares (OLS) and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) estimation.... (More)
The purpose of this paper is to interrogate the single and joint effect interest and exchange rate movements have on banks’ stock returns. This study also aims to compare the volatility of the banks’ stock returns for countries in different markets using both the short and long-term interest rate and the respective exchange rates. To conduct our tests, we use a sample of 14 German and 11 South African banks’ stocks listed on the respective stock exchange markets, with daily data spanning from 3rd January 2012 to 30th December 2021. We distinguish the relationship between bank stock and the interest and exchange rate by using Ordinary Least Squares (OLS) and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) estimation. Generally, we find that banks’ stock returns are not significantly affected by the interest rate risk in Germany, whereas in South Africa they are significantly negatively exposed to this risk. Furthermore, variation in the banks’ stock returns are mostly explained by the exchange rate risk, which has a negative impact in both countries. We conclude that South African banks’ stock are more sensitive to interest rate and exchange rate risk in comparison to German banks’ stock returns (Less)
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author
Kpoti-Mayor, Priscilla Yayra LU and Musimwa, Rutendo Yvonne LU
supervisor
organization
course
NEKN02 20221
year
type
H1 - Master's Degree (One Year)
subject
keywords
Bank's Stock Returns Interest rate Exchange Rate Germany South Africa
language
English
id
9088627
date added to LUP
2022-10-10 09:34:35
date last changed
2022-10-10 09:34:35
@misc{9088627,
  abstract     = {{The purpose of this paper is to interrogate the single and joint effect interest and exchange rate movements have on banks’ stock returns. This study also aims to compare the volatility of the banks’ stock returns for countries in different markets using both the short and long-term interest rate and the respective exchange rates. To conduct our tests, we use a sample of 14 German and 11 South African banks’ stocks listed on the respective stock exchange markets, with daily data spanning from 3rd January 2012 to 30th December 2021. We distinguish the relationship between bank stock and the interest and exchange rate by using Ordinary Least Squares (OLS) and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) estimation. Generally, we find that banks’ stock returns are not significantly affected by the interest rate risk in Germany, whereas in South Africa they are significantly negatively exposed to this risk. Furthermore, variation in the banks’ stock returns are mostly explained by the exchange rate risk, which has a negative impact in both countries. We conclude that South African banks’ stock are more sensitive to interest rate and exchange rate risk in comparison to German banks’ stock returns}},
  author       = {{Kpoti-Mayor, Priscilla Yayra and Musimwa, Rutendo Yvonne}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Sensitivity of Banks' Stock Returns to the interest rate risk and exchange rate risk: A Case Study of Germany and South Africa}},
  year         = {{2022}},
}