97 research outputs found
Macroeconomic Sources of Foreign Exchange Risk in New EU Members
We address the issue of foreign exchange risk and its macroeconomic determinants in several new EU members. The joint distribution of excess returns in the foreign exchange market and the observable macroeconomic factors is modeled using the stochastic discount factor (SDF) approach and a multivariate GARCH-in-mean model. We find that in post-transition economies real factors play a small role in determining foreign exchange risk, while nominal and monetary factors have a significant impact. Therefore, to contribute to the further stability of their domestic currencies, the central banks in the new EU member countries should continue stabilization policies aimed at achieving nominal convergence with the core EU members, as nominal factors play a crucial role in explaining the variability of the risk premium.http://deepblue.lib.umich.edu/bitstream/2027.42/64391/1/wp898.pd
Foreign Exchange Risk Premium Determinants: Case of Armenia
This paper studies foreign exchange risk premium using the uncovered interest rate parity framework in a single country context. The analysis is performed using weekly data on foreign and domestic currency deposits in Armenian banking system. The paper provides the results of the simple tests of uncovered interest parity condition, which indicate that contrary to established view dominating in empirical literature there is a positive correspondence between exchange rate depreciation and interest rate differentials in Armenian deposit market. Furthermore, the paper presents and discusses a systematic positive risk premium required by the economic agents for foreign exchange transactions, which increases over the investment horizon. The two currency affine term structure framework is applied to identify the factors driving the systematic exchange rate risk premium in Armenia. At the end, possible directions for further research are outlined.http://deepblue.lib.umich.edu/bitstream/2027.42/40197/3/wp811.pd
Determinants of bank interest margins in Russia: Does bank ownership matter?
This paper analyzes interest margin determinants in the Russian banking sector with a particular emphasis on the bank ownership structure. Using a unique bank-level data covering Russiaâs entire banking sector for the 19992007 period, we find that the impact of a number of commonly used determinants such as market structure, credit risk, liquidity risk and size of operations differs across state-controlled, domestic-private and foreign-owned banks. At the same time, the influence of operational costs and bank risk aversion is homogeneous across ownership groups. The results overall suggest the form of bank ownership needs to be considered when analyzing interest margin determinants.bank interest margins; financial intermediation; Russia
Exchange Rate Risk in Central European Countries
The authors address the issue of foreign exchange risk and its macroeconomic determinants in several Central European (CE) economies. The joint distribution of excess returns in the foreign exchange market and observable country-specific macroeconomic factors is modeled using the stochastic discount factor (SDF) approach and a multivariate GARCH-in-mean model. The authors find that real factors seem to lack significance in determining foreign exchange risk, while nominal factors (inflation and money) have a significant impact. The differences in the impact of nominal factors are related to the actual monetary policy regimes adopted in the countries examined. The authorsÂŽ findings have policy implications with respect to currency stability. The central banks in the CE countries should continue stabilization policies aimed at achieving nominal convergence with the core EU members, as nominal country-specific factors play a crucial role in explaining the variability of the risk premium.foreign exchange risk, time-varying risk premium, stochastic discount factor, multivariate GARCH-in-mean
The implications of latent technology regimes for competition and efficiency in banking
Banks continue to differ in many ways, for instance with respect to business models, growth strategies, or financial health. Neglecting these differences confuses inefficiency with heterogeneity while sub-sample estimation prohibits efficiency comparisons across different samples. We use a latent class stochastic frontier model to estimate simultaneously multiple technology regimes and group membership probabilities. The latter are conditioned on six bank traits of German banks and we identify four signifficantly different technology regimes. Only small, retail focused banks exhibit cost inefficiencies, which are 5.4% on average and thus substantially lower compared to previous studies. We use technology regime specific cost parameters to measure competition with Lerner indices. Large, national universal banks and the smallest, most specialized banks exhibit the lowest level of competition. In turn, medium sized universal banks are both efficient and exhibit the lowest Lerner margins between 1994 and 2004. -- Das deutsche Bankwesen wird oft als Drei-SĂ€ulen-System bezeichnet, welches aus Sparkassen, GeschĂ€fts-, und Genossenschaftsbanken besteht. Diese Systematik wird oft als geradezu natĂŒrliche Marktsegmentierung verstanden. Banken können sich jedoch auch zwischen und innerhalb der drei SĂ€ulen hinsichtlich anderer Kriterien unterscheiden, zum BeispielWachstumsstrategien, StabilitĂ€tseigenschaften oder GeschĂ€ftsmodellen. Viele vergleichenden Studien definieren oftmals vorab Teilstichproben, um diese Unterschiede zu berĂŒcksichtigen. Jede Bildung von Bankengruppen beinhaltet jedoch unweigerlich eine zum Teil willkĂŒrliche Komponente und verhindert auĂerdem den Vergleich relativer EffizienzmaĂe zwischen Teilstichproben. In dieser Studie benutzen wir ein latent class frontier model (LCFM), um unterschiedliche Technologiegruppen empirisch zu schĂ€tzen anstatt sie zu definieren. Wir ermitteln die Wahrscheinlichkeit der Gruppenzugehörigkeit (GZW) je Bank in AbhĂ€ngigkeit von sechs individuellen Charakteristika. FĂŒr jede Technologiegruppe leiten wir Wettbewerbsma?e ab und untersuchen deren Entwicklung zwischen 1994 und 2004.Banks,competition,efficiency,latent class frontier,strategy
Macroeconomic Sources of Foreign Exchange Risk in New EU Members
We address the issue of foreign exchange risk and its macroeconomic determinants in several new EU members. The joint distribution of excess returns in the foreign exchange market and the observable macroeconomic factors is modeled using the stochastic discount factor (SDF) approach and a multivariate GARCH-in-mean model. We find that in post-transition economies real factors play a small role in determining foreign exchange risk, while nominal and monetary factors have a significant impact. Therefore, to contribute to the further stability of their domestic currencies, the central banks in the new EU member countries should continue stabilization policies aimed at achieving nominal convergence with the core EU members, as nominal factors play a crucial role in explaining the variability of the risk premium.foreign exchange risk, time-varying risk premium, stochastic discount factor, multivariate GARCH-in-mean, post-transition and emerging markets
Real estate markets and bank distress
We investigate the relationship between real estate markets and bank distress among German universal and specialized mortgage banks between 1995 and 2004. Higher house prices increase the value of collateral, which reduces the probability of bank distress (PDs). But higher prices at given rents may also indicate excessive expectations regarding the present value of real estate assets, which can increase PDs. Increasing price-to-rent ratios are positively related to PDs and larger real estate exposures amplify this effect. Rising real estate price levels alone reduce bank PDs, but only for banks with large real estate market exposure. This suggests a positive, but relatively small 'collateral' effect for banks with more expertise in specialized mortgage lending. Likewise, lower price-to-rent ratios are estimated to reduce the riskiness of banks. The multilevel logit model used here further shows that real estate markets are regionally segmented and location-specific effects contribute significantly to predicted bank PDs. --Real estate,distress,universal vs. specialized banks
Foreign Exchange Risk Premium Determinants: Case of Armenia
This paper studies foreign exchange risk premium using the uncovered interest rate parity framework in a single country context. The analysis is performed using weekly data on foreign and domestic currency deposits in Armenian banking system. The paper provides the results of the simple tests of uncovered interest parity condition, which indicate that contrary to established view dominating in empirical literature there is a positive correspondence between exchange rate depreciation and interest rate differentials in Armenian deposit market. Furthermore, the paper presents and discusses a systematic positive risk premium required by the economic agents for foreign exchange transactions, which increases over the investment horizon. The two currency affine term structure framework is applied to identify the factors driving the systematic exchange rate risk premium in Armenia. At the end, possible directions for further research are outlined.âforward discountâ puzzle, exchange rate risk, affine term structure models, foreign and domestic deposits, transition and emerging markets, Armenia
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