IDEAS home Printed from https://ideas.repec.org/a/wsi/rpbfmp/v09y2006i02ns0219091506000756.html
   My bibliography  Save this article

Effects of Derivatives on Bank Risk

Author

Listed:
  • Dong-Hoon Yang

    (School of IT Business, Information and Communications University (ICU), 119, Munjiro, Yuseong-gu, Daejeon 305-714, Korea)

  • Inman Song

    (School of Business, SungKyunKwan University, 53 Myeongnyun-dong 3-ga, Chongno-gu, Seoul 100-745, South Korea)

  • Junesuh Yi

    (College of Business Administration, Dongguk University, 3-26 Pil-dong, Chung-gu, Seoul 100-715, Korea)

  • Young-Hyeon Yoon

    (International Trade and Foreign Exchange Team, Kookmin Bank, #9-1 Namdaemunro 2-ga, Chung-gu, Seoul 100-715, Korea)

Abstract

This study investigates the empirical relationship between the use of derivatives by Korean banks and risk. In doing so, we employ two alternative measures of proxy for firm risk: systematic risk andex anteearnings volatility.Contrary to the general concerns about the risk-increasing role of the use of derivative products, our results indicate that banks' derivatives are, on average, associated with two measures of risk in negative ways. The evidence is consistent with the conjectures that derivative use reduces noise related to exogenous factors and hence decreases firm risk. This suggests that equity market participants, on average, perceive derivative activities by banks as a sign of banks' efforts to reduce risk.

Suggested Citation

  • Dong-Hoon Yang & Inman Song & Junesuh Yi & Young-Hyeon Yoon, 2006. "Effects of Derivatives on Bank Risk," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 275-295.
    • Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:02:n:s0219091506000756
    DOI: 10.1142/S0219091506000756
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219091506000756
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219091506000756?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chuang-Chang Chang & Keng-Yu Ho & Yu-Jen Hsiao, 2018. "Derivatives usage for banking industry: evidence from the European markets," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 921-941, November.
    2. Liu, Hui-Hsuan & Chang, Ariana & Shiu, Yung-Ming, 2020. "Interest rate derivatives and risk exposure: Evidence from the life insurance industry," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).

    More about this item

    Keywords

    Disclosure quality; capital structure; derivatives; firm risk;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:02:n:s0219091506000756. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.