Switching interest rate sensitivity regimes of U.S. Corporates

We study interest rate sensitivities of U.S. investment grade BBB-rated and high yield corporate bonds over the period of 2001–2016. Our methodology assesses the capital gains of corporate bond portfolios and risk-free government bond portfolios, using average coupon and blended yield indices for the U.S. market. For both, U.S. BBB and high yield corporate bonds, we evidence the switching, from positive to negative interest rate sensitivity, occurring over the transition from the normal economic conditions to the periods of economic distress and vice-versa. The proposed theoretical explanation of such binary behavior posits an interrelation between interest rate and creditworthiness of issuers, which varies according to the phases of the business cycle. This research advances an economic understanding of interest rate risk management and sheds light on how financial institutions may develop strategies that hedge against downside risk.     

The interest rate spreads in the Czech Republic: Different loans,different determinants?

We analyze the determinants of interest rate spreads of different loan categories in the Czech Republic during 2004–2011. We employ a detailed bank supervisory dataset that allows us to construct the actual spreads for four loan categories, namely small and large corporate loans, consumer loans and mortgages, on a monthly basis. Our regression analysis shows that bank and macroeconomic characteristics matter more for setting the spreads for small corporate loans and mortgages rather than for large corporate loans and consumer loans. Interest rate risk determines the spreads for all loan categories. The global financial crisis has, to a certain extent, increased the responsiveness of spreads to interest rate risk and liquidity risk.     

Cost efficiency and value driver analysis of insurers in an emerging economy

This study investigated cost inefficiencies and its relationship with value drivers of insurers in United Arab Emirates (UAE). The study revealed that there were 21–33% cost inefficiencies in these insurers under different model specifications of stochastic frontier and DEA; value drivers such as lower leverage risk, lower capital risk significantly improved cost efficiencies consistent with Basel II norms; ROE positively influenced cost efficiencies with further trade off between increased profit margin, decreased asset utilization and/or reduced equity multiplier by the insurer managements to achieve a target‐ROE; and the trend of cost efficiency was improving during 2000–2004. The study suggests that stock insurers could overcome their cost inefficiencies through adoption of efficient measures such as risk mapping of clients, risk prioritization besides ALM techniques. The study has direct implications for individual and institutional investors in making their portfolio investment decisions in insurance sector, policymakers, and regulators to closely monitor inefficient insurers consistent with Basel II norms. Copyright © 2008 John Wiley & Sons, Ltd.     

股票久期与资产组合的利率风险度量

股票利率风险的定量研究在中国尚不多见。论文采用久期技术探讨了资产组合利率风险测量与管理问题。论文创新之处在于建立了一个基于股权自由现金流的股票久期微观模型,对微观模型和基于消费资产定价的股票宏观久期进行了比较,以这两个模型为依据,计算出我国上证50指数成分股的总体久期值分别为18和25。     

Pricing Range Accrual Interest Rate Swap employing LIBOR market models with jump risks

This research derives the LIBOR market model with jump risks, assuming that interest rates follow a continuous time path and tend to jump in response to sudden economic shocks. We then use the LIBOR model with jump risk to price a Range Accrual Interest Rate Swap (RAIRS). Given that the multiple jump processes are independent, we employ numerical analysis to further demonstrate the influence of jump size, jump volatility, and jump frequency on the pricing of RAIRS. Our results show a negative relation between jump size, jump frequency, and the swap rate of RAIRS, but a positive relation between jump volatility and the swap rate of RAIRS.     

Firm-specific,industry-specific and macroeconomic factors of life insurers’ profitability: Evidence from Canada

The purpose of this study is to examine the effects of firm-specific, industry-specific and macroeconomic factors on the performance of life insurance firms. This study focuses on the Canadian life insurance sector, which is the second largest and oldest financial services sector in Canada. Using an empirical framework that incorporates both fixed and dynamic panel models that control for endogeneity issues, this research finds that size, liquidity, and risk exposure of life insurers are significant factors in their profitability. Secondly, industry concentration (e.g., HHI) fail to provide any meaningful evidence to support the structure-conduct-performance (SCP) theory in the static panel models, but in the dynamic models, industry concentration tends to have negative impacts on profitability. Macroeconomic factors such as real GDP growth and equity market returns are found to be significant determinants of insurers’ profitability. Finally, the persistence of profits for life insurers’ seems to lag that of their financial services counterparts (e.g., banks).     

Who speaks louder,financial instruments or credit rating agencies? Analyzing the effects of different sovereign risk measures on interest rates in Brazil

Analyzing sovereign risk measures for Brazil, we observe that credit rating agencies are more cautious and conservative than the market to report risk rating improvements, and more rigorous in assigning better risk ratings. In turn, evidence suggest interest rates reflect sovereign risk conditions. However, to date, no study has assessed which measure of sovereign risk has the greatest impact on the yield curve. Using data from March 2004 to August 2019, we investigate whether interest rates respond differently to different sovereign risk measures in Brazil. As a novelty, the results indicate that credit rating agencies “speak louder” in affecting interest rates, i.e., they proved to have greater capacity to affect the yield curve. Therefore, the importance of these agencies is not limited only for financial markets, but also for policymakers, as the slope of the yield curve acts as a leading indicator of the business cycle.     

In search for yield? Survey-based evidence on bank risk taking

Monetary policy can have an impact on economic and financial stability through the risk taking of banks. Falling interest rates might induce investment into risky activities. This paper provides evidence on the link between monetary policy and bank risk taking. We use a factor-augmented vector autoregressive model (FAVAR) for the US for the period 1997–2008. Besides standard macroeconomic indicators, we include factors summarizing information provided in the Federal Reserve’s Survey of Terms of Business Lending (STBL). These data provide information on banks׳ new loans as well as interest rates for different loan risk categories and different banking groups. We identify a risk-taking channel of monetary policy by distinguishing responses to monetary policy shocks across different types of banks and different loan risk categories. Following an expansionary monetary policy shock, small domestic banks increase their exposure to risk. Large domestic banks do not change their risk exposure. Foreign banks take on more risk only in the mid-2000s, when interest rates were ‘too low for too long’.     

Contingent factors of the coinsurance function of internal capital markets: Evidence from the US nonlife insurance industry

By analyzing intragroup reinsurance activities in the US nonlife insurance sector from 1999 to 2016, we provide evidence that the coinsurance function of internal capital markets is contingent on internal capital providers’ financial resources and the relative sizes of capital receivers within the group. We demonstrate that insurance groups commonly use intragroup reinsurance (a substitute for capital) to support insurers that sustain underwriting losses. Larger insurers are more likely to obtain internal reinsurance if their affiliated insurers hold more financial resources. Our findings show that the financial capabilities of group members providing support affect the feasibility of the coinsurance function through the activities of internal capital markets. Group members with greater influence are more likely to benefit from the coinsurance function.     

Inflation and interest rate derivatives for FX risk management: Implications for exporting firms under real wealth

Firms that export goods face risks such as product price, cost, and exchange rate risks. Price and cost risks can substantially reduce the FX hedging performance in real wealth. We thus investigate hedging strategies that are intended to improve the performance of the FX hedge in real terms using inflation and interest rate derivatives. The impact of these additional instruments is not clear and has only been briefly analyzed in the hedging literature so far. For this purpose, we derive variance-minimizing hedge positions of an exporting firm. A cointegrated VAR and bootstrap methods are used to evaluate the efficiencies of several hedging strategies. While inflation derivatives work better in the short run, interest rate derivatives perform better over longer hedge horizons.     

China's Interest Rate Pass‐through to Commercial Banks Before and After Interest Rate Liberalisation

On 23 October 2015, the People's Bank of China (PBoC) completed the process of interest rate liberalisation. This study examines China's interest rate pass‐through to the lending rate of commercial banks before and after interest rate liberalisation. Based on data from Q3, 2007 to Q2, 2016, the study shows that the interest rate pass‐through from policy rate to lending rate, which was effective before October 2015, lost effectiveness thereafter. PBoC interventions, the ‘Impossible Trinity’ theory and institutional factors may contribute to this ineffectiveness of the policy rate pass‐through, which may also be related to the higher premium for risk required by banks and to the worsening of their financial condition. The study also offers policy advice in response to the declining effectiveness of China's interest rate pass‐through.     

对加入WTO后我国利率市场化改革进程的思考

我国现行利率形成机制的失效及对经济的抑制要求利率市场化改革.以加入世贸为标志,中国必将更深入地融入全球经济一体化之中,中国的非市场化的利率形成机制也将由于与WTO的各项规则冲突而受到巨大冲击.内外因素的共同作用必将加快利率市场化改革的进程.     

Should the monetary policy rule be different in a financial crisis?

This article reviews the finding that standard loss functions in output and inflation are higher during discretionary periods than in periods during which monetary policy is described by a rule, such as the Taylor rule. It shows that the finding is consistent with earlier research, but argues that we really do not know if the Taylor rule would have improved performance during the recent financial crisis. The article then considers modifications of policy rules to deal with changes in interest rate spreads, credit aggregates and banks׳ balance sheets.     

Selecting explanatory factors of voting decisions by means of fsQCA and ANN

This investigation applies fuzzy-set qualitative comparative analysis (fsQCA) and an artificial neural networks method (ANN) with the aim of addressing the determinants of votes regarding managerial proposals presented in corporate meetings. The data refer to companies in the United States banking industry and they cover the period from 2003 to 2013. The results show that the variables that contribute to explain the voting support have changed over time. Thus, during the 2003–2006 sub-period the number of funds voting appears as the most clearly outstanding variable. On the contrary, in the 2007–2009 sub-period there is a heterogeneous set of explanatory features that includes the total volume of assets, the leverage ratio and the return on assets ratio, among others, as the most remarkable factors. Finally, in the 2010–2013 sub-period, there are no specific features or combinations that contribute to voting support, indicating that the explanatory factors are yet to be consolidated after the financial downturn.     

Interest rate risk propagation: Evidence from the credit crunch

During the 2007–2009 financial crisis, US subprime mortgage risk exposures led to severe liquidity problems in several other foreign markets. Such risk contagion was caused by enormous changes in interest rates. Although risk contagion has been investigated by several literatures, the magnitude of propagated interest rate risk around global financial markets remains unexplored. Therefore, this study quantifies the degree to which the increased credit risk within the US financial system propagated to the European markets’ liquidity risks. Specifically, using a conditional value-at-risk (CoVaR) model, we quantitatively measure interest rate risk of a European country, by looking at the upside risk in distribution of changes in interest rate. And such propagation risk measure considers additional value-at-risk conditional on the interest rate movements in the US. The results show significantly positive differences between European country's value-at-risk conditional on the US financial markets being in a normal or distressed state. This propagating effect increased from 2007, and was particularly pronounced in the 2008–2009. In addition, the interest rate risk contagion is especially severe for some countries in the Euro regions with greater sovereign debt problems. Hence our result foretells the deterioration of the European sovereign debt crisis which started to unfold in 2010. Our work supplements the literature by successfully quantifying the magnitude of additional interest rate risk conditional on risk exposure from external sectors.     

Currency substitution,risk premia and the Taylor principle

This paper studies the equilibrium determinacy properties of a simple interest rate rule in a small open economy subject to currency substitution (i.e., the use of a foreign currency for domestic transactions) and risk premia on foreign borrowing. It shows that if currencies are substitute in the provision of liquidity services the rule׳s response to inflation has to be sufficiently above unity for the equilibrium to be locally determinate. This reinforced Taylor principle requirement appears to be more binding in economies characterized by a larger elasticity of currency substitution, more debt-elastic country risk premia, and intermediate degrees of dollarization in transactions.     

Time-frequency co-movements between oil prices and interest rates: Evidence from a wavelet-based approach

This paper investigates time–frequency co-movements between crude oil prices and interest rates. To test this relationship, the study applied a continuous wavelet and cross wavelet approaches to data from West Texas Intermediate (WTI) crude oil prices and interest rates in the United States (U.S.). Results from the sample period revealed significant relationships, in the intermediate term, between WTI crude oil prices and U.S. interest rates. Moreover, co-movements between oil price and interest rate variables were especially sensitive during abnormal political events and periods of financial ‘meltdown’. We further use Partial Wavelet Coherence (PWC) and Multiple Wavelet Coherence (MWC) methods to investigate the impacts of five major control variables namely GDP growth, unemployment, three-month Treasury bill, CPI index and industrial production index. The results show a powerful impact of control variables on oil-interest rates co-movements under different frequencies. Finally, we show evidence of co-integrating long run relationship between oil markets and control variables. These results have important implications for energy investors and policy makers.     

我国货币政策利率传导渠道的体制转换特征——利率市场化改革进程中的考察

本文考察了我国利率市场化改革进程中货币政策利率传导渠道效应的体制转换特征。实证结果表明:1978年第一季度至2009年第二季度期间我国货币政策传导的管制利率渠道发生了两次体制转换,转换之后贷款基准利率调整对产出和物价水平的效应都降低了。1996年1月至2009年7月期间我国货币政策传导市场利率渠道发生了一次体制转换,转换之后同业拆借利率变动平抑产出和物价波动的效果都更强劲、更持续。这意味着我国的利率市场化改革取得了阶段性成果,也意味着我国利率调控由直接方式逐渐转向主要依靠间接方式不仅是必要的,也是可行的。     

A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms

We examine the relationship between exchange‐rate changes and stock returns for a sample of Dutch firms over 1994–1998. We find that over 50 per cent of the firms are significantly exposed to exchange‐rate risk. Furthermore, all firms with significant exchange‐rate exposure benefit from a depreciation of the Dutch guilder relative to a trade‐weighted currency index. This result confirms that firms in open economies, such as the Netherlands, exhibit significant exchange‐rate exposure. We collect unique information on the most relevant individual currencies for each firm with respect to their influence on firm value. Our results indicate that the use of a trade‐weighted currency index and the use of individual exchange rates are complements. We also measure the determinants of exchange‐rate exposure. As expected, we find that firm size and the foreign sales ratio are significantly and positively related to exchange‐rate exposure. In contrast with our hypothesis, off‐balance hedging using derivatives has no significant effects. Finally, in line with theory, we find that exposure is significantly reduced through on‐balance sheet hedging, i.e., through foreign loans and by producing in factories abroad.     

利率市场化程度、审计师声誉与银行风险管理

采用2002—2016年我国177家银行的财务信息，并运用法规描述法对各年的利率市场化程度进行测量，检验利率市场化程度、审计师声誉与银行风险管理间的关系。研究发现：当利率市场化程度提升时，商业银行的风险管理强度会显著下降；选聘了高声誉审计师的银行会显著提高风险管理强度。在利率市场化程度提升时，相较于低声誉审计师，高声誉审计师帮助银行提高风险管理强度的作用更为显著。上述结果对监管机构利用审计声誉机制督促银行进行风险管理具有一定的借鉴意义。