Maturity Transformation Strategies and Interest Rate Risk of Financial Institutions: Evidence from the German Market

Scholz H, Simon S, Wilkens M (2010)

Publication Language: English

Publication Type: Book chapter / Article in edited volumes

Publication year: 2010

Publisher: World Scientific Pub Co

Edited Volumes: Banking and Capital Markets: New International Perspectives

City/Town: New Jersey

Pages Range: 155-182

DOI: 10.1142/9789814273619_0006

Abstract

Economic theory postulates that financial institutions are exposed to a significant interest rate risk which is largely due to their engagement in maturity transformation. Although this maturity transformation and the associated risk is of interest to all stakeholders of financial institutions, it has not yet been well studied. In this study we systematically examine different regression approaches for externally quantifying the exposure to interest rate risk of financial institutions. In this context, we have derived and empirically apply a new and - in economic respects more appropriate - maturity transformation factor. Comparing the explanatory power of different interest rate factors, this maturity transformation factor proves superior. Furthermore, this innovative factor allows us to estimate and interpret the maturity transformation of financial institutions and its respective contribution to total return and risk. All in all, the results obtained for the financial services sector in contrast to non-financial services sectors strongly support Hicks' liquidity preference hypothesis.

Authors with CRIS profile

Hendrik Scholz Lehrstuhl für Betriebswirtschaftslehre, insbesondere Finanzierung und Banken

Involved external institutions

Universität Augsburg DE Germany (DE)

How to cite

APA:

Scholz, H., Simon, S., & Wilkens, M. (2010). Maturity Transformation Strategies and Interest Rate Risk of Financial Institutions: Evidence from the German Market. In Black H., Blenman L., Kane E. (Eds.), Banking and Capital Markets: New International Perspectives. (pp. 155-182). New Jersey: World Scientific Pub Co.

MLA:

Scholz, Hendrik, Stephan Simon, and Marco Wilkens. "Maturity Transformation Strategies and Interest Rate Risk of Financial Institutions: Evidence from the German Market." Banking and Capital Markets: New International Perspectives. Ed. Black H., Blenman L., Kane E., New Jersey: World Scientific Pub Co, 2010. 155-182.

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