Abstract
AbstractOur aim is to investigate the sensitivity of financial sector stock returns to market, interest rate, and exchange rate risk in three financial sectors (financial services, banking, and insurance) in eight countries, including various European, the US, and China economies, over the period 2006–2009 during the financial crisis. The econometric framework is a four-variate GARCH-in-mean model and volatility spillovers. The empirical results show the significant effects (positive and negative, respectively) of the stock market returns, interest rate, and exchange rate volatility of the financial sector during the crisis. Besides, we find, in most cases, significant (positive and negative, respectively) volatility spillovers from market return, interest rate, exchange rate, and interest rate in the financial services and the banking sector both in the European and the US economies during the financial crisis.
Highlights
During the last decades, the linkage between the interest rate, the exchange rate, the stock return market, and the financial sector remains a crucial issue for risk management and portfolio management
Unlike Di Iorio et al (2006) found that no specific financial sector is less sensitive to neither the short- and long-term interest rates the weak effect of both the exchange rates and the stock market return performance on the financial sector. These results are consistent with the studies of Beirne et al (2009) who pointed out that the financial sectors are more sensitive to the short- and long-term interest rates, to the exchange rates and to the stock market returns
The average non-effect of the causality test is represented by (β12, β13, β14, and β15). This shows that the exchange and the short- or long-term interest rates, as well as the stock market returns are significant in all the analyzed countries at 1% level, excepting the USA where the short-term interest rate is significant at 10% (H6), whereas the longterm interest rate is not significant
Summary
The linkage between the interest rate, the exchange rate, the stock return market, and the financial sector remains a crucial issue for risk management and portfolio management. The dynamic relationship between the three risks has had important implications and has drawn the attention of numerous economists, both for theoretical and empirical Jarboui Anis. Aloui Mouna, PhD, is an associate researcher at LARTIGE (Laboratory of Research) in the University of Sfax, Tunisia. Her research interests are in financial, economic education finance market, and corporate governance. Jarboui Anis, PhD, is a professor of finance and accounting at the University of Sfax, Tunisia. His research interests are in corporate governance, financial literacy, and behavioral finance
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