Off-Balance-Sheet Activities and the Shadow Banking System: An Application of the Hausman Test with Higher Moments Instruments

23 Pages Posted: 15 Sep 2010  

Raymond Théoret

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG)

Christian Pierre Alain Calmès

Université du Québec en Outaouais

Date Written: September 14, 2010

Abstract

The non-interest income banks generate from their off-balance-sheet activities contributes greatly to the volatility of their operating revenues. Using Canadian data, we apply a modified Hausman procedure based on higher moments instruments and revisit this phenomenon to establish that the share of non-interest income (snonin) is actually endogenous to banks returns. In 1997, after the adoption of the Value at Risk (VaR) as a measure of banks risk, the snonin sign turns positive in the returns equations, indicating the emergence of diversification gains from banks non-traditional activities. ARCH-M estimations corroborate the idea that banks have gradually adapted to their new business lines, with an adjustment process begun even before 1997. However, the banks risk premium associated to OBS activities has continuously increased since that date.

Suggested Citation

Théoret, Raymond and Calmès, Christian Pierre Alain, Off-Balance-Sheet Activities and the Shadow Banking System: An Application of the Hausman Test with Higher Moments Instruments (September 14, 2010). Available at SSRN: https://ssrn.com/abstract=1676934 or http://dx.doi.org/10.2139/ssrn.1676934

Raymond Théoret

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG) ( email )

Case postale 8888
Succursale Centre-ville
Montreal, Quebec H3C 3P8
Canada

Christian Pierre Alain Calmès (Contact Author)

Université du Québec en Outaouais ( email )

Campus de St Jérôme
5 rue St Joseph
St Jérôme, Québec J7Z 0B7
Canada

HOME PAGE: http://econpapers.repec.org/RAS/pca19.htm

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