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Estimating banks' equity duration: a panel cointegration approach

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  • Abdulnasser Hatemi-J
  • Eduardo Roca

Abstract

Using panel unit root and cointegration analyses, we estimate the equity duration for banks covering the countries of Australia, US, Canada and the UK for the period 1986 to 2003. Our results show that banks in the UK had the highest duration followed by those in Australia, Canada and then the US. These results have important implications for policymakers particularly because banks, among others, act as conduit of monetary policy. Since duration is a measure of sensitivity to interest rates, these results imply that banks in the UK would be the most affected by monetary policy changes while those in the US would be the least affected. These results are also of importance to investors. Since duration also measures the speed by which cash flows come back, these results indicate that investors in US banks recover their investment faster than the investors in banks of Australia, Canada and the UK. This contention is supported by the fact that among the four countries, banks in the US are the most profitable while those in the UK are the least.

Suggested Citation

  • Abdulnasser Hatemi-J & Eduardo Roca, 2008. "Estimating banks' equity duration: a panel cointegration approach," Applied Financial Economics, Taylor & Francis Journals, vol. 18(14), pages 1173-1180.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:14:p:1173-1180
    DOI: 10.1080/09603100701551640
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    1. Ferrer, Román & Bolós, Vicente J. & Benítez, Rafael, 2016. "Interest rate changes and stock returns: A European multi-country study with wavelets," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 1-12.
    2. Andrew Phiri, 2018. "Has the South African Reserve Bank responded to equity returns since the sub-prime crisis? An asymmetric convergence approach," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 10(3), pages 205-225.
    3. Phiri, Andrew, 2017. "Has the South African Reserve Bank responded to equity prices since the sub-prime crisis? An asymmetric convergence approach," MPRA Paper 76542, University Library of Munich, Germany.

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