International Spillover of Risk and Return Among Major Banking Institutions: A Bivariate GARCH Model

29 Pages Posted: 17 Jun 2014

See all articles by Elyas Elyasiani

Elyas Elyasiani

Temple University - Department of Finance

Iqbal Mansur

Widener University - School of Business Administration

Date Written: April 1, 2003

Abstract

Using the bivariate GARCH methodology, this study examines bank stock sensitivities to market, interest rate, and exchange rate, and investigates the spillover effects of interest rate volatility and unsystematic risk among the banking sectors of the United States and Japan, and the United States and Germany. Empirical results show that return-generating processes of the banking sectors considered can be properly described by GARCH models. Within this framework, banks are found to be highly sensitive to macroeconomic shocks such as the exchange rate and interest rate, with the latter exerting its impact at the volatility level. Moreover, stock volatilities in the banking sectors of the three countries are found to be highly interdependent. The direction and magnitude of the effects from interest rate volatility and unsystematic shocks in one country on other countries are sensitive to the origin of the shock, with the United States playing a leadership role. The findings have serious implications on international financial stability, international portfolio diversification, and policy formulation by central banks and fiscal authorities.

Suggested Citation

Elyasiani, Elyas and Mansur, Iqbal, International Spillover of Risk and Return Among Major Banking Institutions: A Bivariate GARCH Model (April 1, 2003). Journal of Accounting, Auditing and Finance (2003) 18:303; Fox School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2451166

Elyas Elyasiani (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Iqbal Mansur

Widener University - School of Business Administration ( email )

3800 Vartan Way
PO Box 69381
Harrisburg, PA 17106-9381
United States

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