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The relationship between exchange rates, interest rates and Australian bank returns

journal contribution
posted on 2011-07-01, 00:00 authored by Ameeta JainAmeeta Jain, Paresh Narayan, Dianne Thomson
Although there has been significant research on US financial intermediaries' stock returns and sensitivity to interest yields, there has only been limited research on Australian bank stock returns and key macro variables, such as interest rates and exchange rates. The aim of this article is to examine this relationship for four major Australian banks, namely the Australia New Zealand bank (ANZ), the Commonwealth Bank of Australia (CBA), the National Australia Bank (NAB) and the Westpac Banking Corporation (WBC). We use the EGARCH model and examine the relationship using monthly data covering the period 1992 to 2007. The results suggest that for all four banks: (1) there is a similar and statistically significant negative relationship between interest rates and stock returns; and (2) there is evidence of an increase in returns during the period of appreciation of the Australian dollar.

History

Journal

Applied economics letters

Volume

18

Issue

10

Pagination

967 - 972

Publisher

Routledge

Location

Abingdon, England

ISSN

1350-4851

eISSN

1466-4291

Language

eng

Publication classification

C1 Refereed article in a scholarly journal

Copyright notice

2011, Taylor & Francis

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