Dynamic correlation analysis of spill-over effects of interest rate risk and return on Australian and US financial firms

Journal article


Akhtaruzzaman, Md, Shamsuddin, Abul and Easton, Steve. (2014). Dynamic correlation analysis of spill-over effects of interest rate risk and return on Australian and US financial firms. Journal of International Financial Markets, Institutions and Money. https://doi.org/10.1016/j.intfin.2014.04.006
AuthorsAkhtaruzzaman, Md, Shamsuddin, Abul and Easton, Steve
Abstract

This paper examines the spill-over effects of interest rate risk and return on Australian and US financial firms using a dynamic conditional correlation GARCH model. Australian banks exhibit negative exposure to changes in both domestic and US interest rates, and US interest rate volatility is found to be an important predictor of Australian bank stock return volatility. Similar findings are obtained for the aggregate portfolio of financial stocks. The time-varying conditional correlation between Australian and US financial stock returns increases during financial crises and varies directly with net capital flows between Australia and the US. Further, the conditional correlation increases (decreases) during the contractionary (expansionary) periods of the US business cycle.

KeywordsFinancial firms; Interest rate risk; Dynamic conditional correlation
Year2014
JournalJournal of International Financial Markets, Institutions and Money
Digital Object Identifier (DOI)https://doi.org/10.1016/j.intfin.2014.04.006
Research GroupPeter Faber Business School
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