An Investigation of the Impact of Interest Rates and Interest Rate Volatility on Australian Banking Sector Stock Return Distributions

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Title An Investigation of the Impact of Interest Rates and Interest Rate Volatility on Australian Banking Sector Stock Return Distributions
Author Faff, Robert W.; Hodgson, Allan; Kremmer, Michael Leslie
Journal Name Journal Of Business Finance And Accounting
Year Published 2005
Place of publication Oxford
Publisher Blackwell Publishing
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 multivariate GARCHM 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 prederegulation period to negative in the postderegulation period. This reflects the changing institutional environment from one of controlled credit rationing to a more competitive environment.
Peer Reviewed Yes
Published Yes
Publisher URI http://www.blackwell-synergy.com/doi/full/10.1111/j.0306-686X.2005.00620.x
Alternative URI http://www.blackwell-synergy.com/doi/abs/10.1111/j.0306-686X.2005.00620.x
Copyright Statement Copyright 2005 Blackwell Publishing. The definitive version is available at [www.blackwell-synergy.com.]
Volume 32
Issue Number 5&6
Page from 1001
Page to 1030
ISSN 0306-686X
Date Accessioned 2006-03-01
Date Available 2007-03-19T21:45:26Z
Language en_AU
Faculty Griffith Business School
Subject Finance Economics
URI http://hdl.handle.net/10072/4541
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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