Banks’ equity performance and the term structure of interest rates

Using an extensive global sample, this paper investigates the impact of the term structure of interest rates on bank equity returns. Decomposing the yield curve to its three constituents (level, slope and curvature), the paper evaluates the time-varying sensitivity of the bank’s equity returns to these constituents by using a diagonal dynamic conditional correlation multivariate GARCH framework. Evidence reveals that the empirical proxies for the three factors explain the variations in equity returns above and beyond the market-wide effect. More specifically, shocks to the long-term (level) and short-term (slope) factors have a statistically significant impact on equity returns, while those on the medium-term (curvature) factor are less clear-cut. Bank size plays an important role in the sense that exposures are higher for SIFIs and large banks compared to medium and small banks. Moreover, banks exhibit greater sensitivities to all risk factors during the crisis and postcrisis periods compared to the pre-crisis period; though these sensitivities do not differ for market-oriented and bank-oriented financial systems

On intellectual capital efficiency and shariah governance in Islamic banking business model

This paper empirically investigates whether intellectual capital (IC) and shariah governance jointly affect the economic performance of Islamic banks (IBs). In contrast to prior research, this paper disaggregate IC and corporate governance features and examine whether the two are jointly related to economic performance. These relationships are further explored before, during and after the financial crisis based on a sample of 64 Islamic banks operating in different regions during the period 2007–2014. The required data to calculate different constituents of IC efficiency and governance mechanism is hand collected from 512 annual reports. After controlling for other corporate governance and bank‐specific characteristics (operational type, bank size, listing status, risk, type of auditor, accounting standard and region), we find both intellectual capital efficiency and shariah governance proxies (size and dominance of prominent scholars of shariah supervisory board) to have a significant positive relationship with accounting measure of performance. However, based on market performance measure, only one proxy for shariah governance mechanism, that is, prominent scholars on SSB, is found to be significant but in the negative direction. These results provide important insights into the relationship between IC efficiency, corporate governance and performance in Islamic banking business model and have policy and practical implications

The Pricing Of Risk Factors And The UK Insurance Stocks' Performance A Nonlinear Multivariate Approach

The objective of the present study is to examine the impact of exchange and interest rate changes on the common stock returns of the insurance companies in the UK. All general and life insurance firms listed in the London Stock Exchange are selected for this purpose. An augmented market model with the additional variables of the interest and exchange rate indices is employed to test both the pricing question and the factor sensitivity of the particular sample. A seemingly unrelated regression (SURE) multivariate estimation with both cross–equation restrictions and within equation nonlinear constraints on the parameters is employed. This method eliminates the errors in variable (EIV) problem and the estimates are strongly consistent and asymptotically normal even without the assumption of normally distributed errors. The two main implications of this investigation are as follows. First both kinds of insurance companies are negatively and equally affected by unanticipated changes in interest rates. Second the changes in exchange rates seem to inversely affect the general insurance companies, while the life insurance firms seem to be insensitive.Insurance stock returns, Interest and exchange rates, APT, Kalman filter, Nonlinear SURE modelling.