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International capital standards, bank portfolios and bank stock risk

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  • Sunil Mohanty
  • Frank Song

Abstract

The results suggest that the composition of bank portfolios affect the market risk (beta) of bank stock returns. In particular, the 20% asset category, which primarily includes government agency securities is associated with increases in market risk, indicating assets in this category are exposed to higher interest rate risk and prepayment risk. The market risk is lower for those institutions who concentrate on one-to-four family residential mortgages, suggesting home mortgages are well collateralized assets with low perceived credit risk. The off-balance sheet activities on average exhibit no significant impact on market risk. The results also suggest that the market perception of the insurer's expected liability is heavily influenced by Tier 1 capital ratio.

Suggested Citation

  • Sunil Mohanty & Frank Song, 2002. "International capital standards, bank portfolios and bank stock risk," Applied Financial Economics, Taylor & Francis Journals, vol. 12(7), pages 527-534.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:7:p:527-534
    DOI: 10.1080/09603100010009948
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    References listed on IDEAS

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    1. J. Kimball Dietrich, 1989. "Bank balance sheet composition and stock market return sensitivity to macroeconomic risk factors," Proceedings, Federal Reserve Bank of San Francisco.
    2. Barr Rosenberg and James Guy., 1975. "The Prediction of Systematic Risk," Research Program in Finance Working Papers 33, University of California at Berkeley.
    3. Charles J. Jacklin, 1993. "Bank capital requirements and incentives for lending," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    4. Charles J. Jacklin, 1993. "Bank capital requirements and incentives for lending," Working Papers in Applied Economic Theory 93-07, Federal Reserve Bank of San Francisco.
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    Cited by:

    1. Elisabetta D¡¯Apolito & Vincenzo Pacelli, 2017. "What Influences Bank Stock Prices in Times of Crisis? An International Survey," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(6), pages 1-14, June.

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