The Influence of Market, Interest Rate, Exchange Rate Risks on Bank Stock Returns in ASEAN-5

Abstract

                This paper investigates the role of three risk factors, including market rate, interest rate and foreign exchange rate risk on bank stock returns in ASEAN-5 (Indonesia, Malaysia, the Philippines,Singapore, and Thailand).The generalized autoregressive conditionally heteroscedastic (GARCH) methodology was employed from the period of January 1997 to December 2015 by using monthly data. The results identified the market rate was a greater risk factor than the interest or the exchange rate on the bank stock returns of all five countries. Furthermore, the interest rate and foreign exchange risks were more pronounced significant effects (positive and negative) on the bank stock returns in some countries. The estimation based on the GARCH approach, showed strong evidence of time-varying volatility in bank stock returns. Lastly, autoregressive conditionally heteroscedastic (ARCH) effect was smaller than the GARCH effect. This referred that the explaining that past shock was less sensitive than own lagged volatility.