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Tripathi, Vanita
- Interest Rate Sensitivity of Banking Stock Returns in India
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Authors
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1 Assistant Professor, Department of Commerce, Delhi School of Economics, University of Delhi, Delhi
2 Assistant Professor, Department of Commerce, Rajdhani College, University of Delhi, Delhi
1 Assistant Professor, Department of Commerce, Delhi School of Economics, University of Delhi, Delhi
2 Assistant Professor, Department of Commerce, Rajdhani College, University of Delhi, Delhi
Source
International Journal of Financial Management, Vol 2, No 4 (2012), Pagination: 10-20Abstract
Besides market risk, banking stocks are also subject to interest rate risk due to the simple fact that banking profitability is a function of prevailing interest rate. This paper examines the effects of interest rate changes on banking stock returns in India using the multivariate OLS and GARCH estimation models over the period 1st April 1996-31st March 2011. The sample consists of 18 commercial bank stocks comprising BANKEX listed on Bombay stock exchange. We find a negative but weak relationship between Bank stock returns and interest rate changes in India. As expected, banking stock returns exhibit significant positive relationship with market returns. However interest rate volatility is found to affect significantly the stock volatility in case of most of the banks in India. Hence although interest rate movements may not significantly affect banking stock returns in India but stock's volatility is significantly affected by the interest rate volatility. These results have important implications for policy regulators, bank managers and investing community at large. The investing community should refrain from investing in banking stocks in times of high interest rate volatility. The bank managers may adopt policies and strategies so as to lower the impact of interest rate volatility on stock return. The policy regulators need to ensure that interest rate volatility does not get transmitted into banking stock returns for the stability of financial system in India.Keywords
Bank Stock Returns, Interest Rate Sensitivity, Market Risk, GARCH
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Authors
Affiliations
1 Department of Commerce, Delhi School of Economics, University of Delhi, Delhi, IN
1 Department of Commerce, Delhi School of Economics, University of Delhi, Delhi, IN
Source
International Journal of Financial Management, Vol 4, No 1 (2014), Pagination: 22-33Abstract
Do prevailing corporate tax rates have any significant impact on corporate financing decision? This is the most controversial question in corporate finance. Theories suggest a positive impact of corporate tax on debt financing as interest is a tax deductible expense and many empirical studies favour this. However, factors dominating in Emerging economies differ from those in developed economies as the priorities of the two are different. Under situation where external capital inflow plays a vital role in the development of the economy, it would be interesting to see whether corporate tax maintains its dominating position as suggested by earlier studies. This paper examines this issue in detail through dynamic panel data model for firms in India.Keywords
Corporate Financing Decision, Taxation, Emerging Economies, Speed of Adjustment- Prior Return Effect in Indian Stock Market:An Intra-Day Analysis
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Authors
Affiliations
1 Delhi School of Economics, Department of Commerce, University of Delhi, Delhi, IN
2 Shri Ram College of Commerce, University of Delhi, Delhi, IN
1 Delhi School of Economics, Department of Commerce, University of Delhi, Delhi, IN
2 Shri Ram College of Commerce, University of Delhi, Delhi, IN