Derivatives usage for banking industry: evidence from the European markets

Chuang Chang Chang, Keng Yu Ho, Yu Jen Hsiao

Research output: Contribution to journalArticle

Abstract

This study investigates the determinants and effects of the use of derivatives in the banking industry, which mainly uses derivatives for trading. Our empirical evidence suggests that banks that use derivatives are associated with higher levels of profitability, lower net interest margin, and more inflows into transaction deposits. We also find that banks’ profitability is significantly and positively related the use of foreign exchange and interest rate derivatives and that banks with high deposits and liquidity are more likely to use foreign exchange derivatives. Finally, we show that derivatives usage increases bank risk and bank value. Our results are robustness to the potential endogeneity issue.

Original languageEnglish
Pages (from-to)1-21
Number of pages21
JournalReview of Quantitative Finance and Accounting
DOIs
Publication statusAccepted/In press - Jan 6 2018

Fingerprint

Banking industry
Derivatives
Deposits
Empirical evidence
Profitability
Interest rate derivatives
Foreign exchange rates
Bank profitability
Liquidity
Interest margin
Bank risk
Robustness
Endogeneity
Foreign exchange

Keywords

  • Bank
  • Derivatives
  • European markets

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

Cite this

Derivatives usage for banking industry : evidence from the European markets. / Chang, Chuang Chang; Ho, Keng Yu; Hsiao, Yu Jen.

In: Review of Quantitative Finance and Accounting, 06.01.2018, p. 1-21.

Research output: Contribution to journalArticle

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