Author : Chu-Sheng Tai
Release : 2001
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Kind : eBook
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Book Synopsis Time-Varying Market, Interest Rate, and Exchange Rate Risk Premia in the U.S. Commercial Bank Stock Returns by : Chu-Sheng Tai

Download or read book Time-Varying Market, Interest Rate, and Exchange Rate Risk Premia in the U.S. Commercial Bank Stock Returns written by Chu-Sheng Tai. This book was released on 2001. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the role of market, interest rate, and exchange rate risks in pricing a sample of the U.S. commercial bank stocks by developing and estimating a multi-factor model under both unconditional and conditional frameworks. Three different econometric methodologies are used to conduct the estimations and testing. Estimations based on NLSUR via GMM indicate that interest rate risk is the only priced factor in the unconditional three-factor model. However, based on quot;Pricing Kernelquot; approach by Dumas and Solnik (Journal of Finance 50, 1995, 445-479), strong evidence of exchange rate risk is found in both large bank and regional bank stocks, and strong evidence of world market risk is found for the regional bank stocks in the conditional three-factor model with time-varying risk prices. Finally, estimations based on the multivariate GARCH in mean approach where both conditional first and second moments of bank portfolio returns and risk factors are estimated simultaneously show strong evidence of time-varying interest rate and exchange rate risk premia and weak evidence of time-varying market risk premium for all bank portfolios. Furthermore, among the three time-varying risk premia, the interest rate risk premium is the major one in describing the dynamics of the U.S. bank stock returns.