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Use of Derivatives and Market Valuation of the Banking Sector: Evidence from the European Union

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  • Marius Cristian Miloș

    (Department of Finance, Faculty of Economics and Business Administration, West University of Timisoara, 16 J.H Pestalozzi Str., 300115 Timisoara, Romania
    East European Center for Research in Economics and Business (ECREB), Faculty of Economics and Business Administration, West University of Timisoara, 16 J.H Pestalozzi Str., 300115 Timisoara, Romania)

  • Laura Raisa Miloș

    (Department of Finance, Faculty of Economics and Business Administration, West University of Timisoara, 16 J.H Pestalozzi Str., 300115 Timisoara, Romania)

Abstract

(1) Background: This paper aims to investigate whether the derivatives usage by the banking sector in the European Union has impacted its market valuation in the aftermath of the financial crisis. (2) Methods: Our analysis takes 120 European financial institutions listed on the European Union stock exchange over a period of 14 years into account (2008–2021). We use the generalized method of moments (GMM) to assess whether the use of derivatives allows financial intermediaries to increase their market value. Control variables, such as size, profitability, expectations of the market, bank risk, liquidity performance, and financial condition, are also taken into consideration. (3) Results: Our main findings suggest that market value is affected negatively by derivative asset accumulation. (4) Conclusions: The results are in line with the studies that investigated the impact of financial derivatives on the market value and found a negative connection between the two, justified by the suboptimal hedging or the higher volatility of the earnings.

Suggested Citation

  • Marius Cristian Miloș & Laura Raisa Miloș, 2022. "Use of Derivatives and Market Valuation of the Banking Sector: Evidence from the European Union," JRFM, MDPI, vol. 15(11), pages 1-14, October.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:11:p:501-:d:955399
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    References listed on IDEAS

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    Cited by:

    1. Arnone, Massimo & Costantiello, Alberto & Leogrande, Angelo, 2025. "Analyzing Risk Exposure Determinants in European Banking: A Regulatory Perspective," MPRA Paper 123190, University Library of Munich, Germany.
    2. Arnone, Massimo & Costantiello, Alberto & Leogrande, Angelo, 2025. "Analyzing Risk Exposure Determinants in European Banking: A Regulatory Perspective," OSF Preprints 2u4jb_v1, Center for Open Science.

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