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Exchange rate risk and the equity performance of financial intermediaries
journal contribution
posted on 2023-06-08, 15:07 authored by Dimitrios Gounopoulos, Philip Molyneux, Sotiris K Staikouras, John O S Wilson, Gang ZhaoThis study uses the VAR-BEKK methodology to examine the relationship between equity returns and currency exposure for a sample of U.S., U.K. and Japanese banks and insurance firms during 2003–2011. The findings indicate that banks' equity returns are negatively related to changes in foreign currency value during the recent financial crisis (2008–2011). That is, the U.S. (Japanese) banking sector returns are negatively correlated to changes in the Japanese Yen (U.S. Dollar). Equity returns of U.S./U.K. insurers are negatively linked to changes in the value of Japanese Yen, and this relationship is accentuated during the crisis. Home currency exposure is not significant for any insurer. When size is taken into account, only small U.S. banks are exposed to home currency changes, while only large Japanese banks are exposed to foreign currency changes. Overall, the negative relationship between the foreign currency value and bank/insurance equity returns supports the “flight to quality” hypothesis from the U.S./U.K. to Japan.
History
Publication status
- Published
Journal
International Review of Financial AnalysisISSN
10575219Publisher
ElsevierExternal DOI
Volume
29Page range
271-282Department affiliated with
- Business and Management Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2013-09-09Usage metrics
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