Témata prací (Výběr práce)Témata prací (Výběr práce)(verze: 348)
Detail práce
   Přihlásit přes CAS
Impact of the low yield environment on banks and insurers: Evidence from equity prices
Název práce v češtině: Impact of the low yield environment on banks and insurers: Evidence from equity prices
Název v anglickém jazyce: Impact of the low yield environment on banks and insurers: Evidence from equity prices
Klíčová slova: low yield environment, banks, insurers, equity prices, panel data, GMM estimation
Klíčová slova anglicky: low yield environment, banks, insurers, equity prices, panel data, GMM estimation
Akademický rok vypsání: 2015/2016
Typ práce: diplomová práce
Jazyk práce: angličtina
Ústav: Institut ekonomických studií (23-IES)
Vedoucí / školitel: doc. PhDr. Ing. et Ing. Petr Jakubík, Ph.D., Ph.D.
Řešitel: skrytý - zadáno vedoucím/školitelem
Datum přihlášení: 20.04.2016
Datum zadání: 20.04.2016
Datum a čas obhajoby: 13.09.2017 08:30
Místo konání obhajoby: Opletalova - Opletalova 26, O105, Opletalova - místn. č. 105
Datum odevzdání elektronické podoby:20.07.2017
Datum proběhlé obhajoby: 13.09.2017
Oponenti: prof. PhDr. Petr Teplý, Ph.D.
 
 
 
Kontrola URKUND:
Seznam odborné literatury
[1] Ameur, I.G.B. and Mhiri, S.M. (2013). "Explanatory Factors of Bank Performance: Evidence from Tunisia", International Journal of Economics [online], Volume 2, No. 1, March 2013, pp. 143-152, available: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.671.7188&rep=rep1&type=pdf [accessed 19 Mar 2016].
[2] Antolin, P., Schich, S. and Yermo, J. (2011). "The Economic Impact of Protracted Low Interest Rates on Pension Funds and Insurance Companies", OECD Journal: Financial Markets Trends [online], Volume 2011, Issue 1, pp. 237-256, available: http://dx.doi.org/10.1787/fmt-2011-5kg55qw0m56l [accessed 19 Mar 2016].
[3] Blundell, R. and Bond, S. (2000). "GMM Estimation with persistent panel data: an application to production functions", Econometric Reviews [online], Volume 19, Issue 3, pp. 321-340, available: http://www.ucl.ac.uk/~uctp39a/blundell-Bond-ER.pdf [accessed 19 Mar 2016].
[4] Bourke, P. (1989). "Concentration and other determinants of bank profitability in Europe, North America and Australia", Journal of Banking and Finance [online], Volume 13, pp. 65-79, available: http://www.sciencedirect.com/science/article/pii/0378426689900204 [accessed 19 Mar 2016].
[5] Dorofti, C. and Jakubik, P. (2015). "Insurance Sector Profitability and the Macroeconomic Environment", Financial Stability Report [online], May 2015, pp. 56-71, available: https://eiopa.europa.eu/Publications/Reports/Financial_Stability_Report_May_2015.pdf [accessed 19 Mar 2016].
[6] Macit, F. (2012). "Bank Specific and Macroeconomic Determinants of Profitability: Evidence From Participation Banks in Turkey", Economics Bulletin [online], Volume 32, Issue 1, pp. 586-595, available: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P55.pdf [accessed 19 Mar 2016].
[7] Molyneux, P. and Thornton, J. (1992). "Determinants of European bank profitability: A note", Journal of Banking and Finance [online], Volume 16, pp. 1173-1178, available: http://www.sciencedirect.com/science/article/pii/0378426692900658 [accessed 19 Mar 2016].
[8] Shiu, Y. (2004). "Determinants of United Kingdom General Insurance Company Performance", British Actuarial Journal [online], Volume 10, Issue 05, pp. 1079-1110, available: http://dx.doi.org/10.1017/S1357321700002968 [accessed 19 Mar 2016].
Předběžná náplň práce
As a consequence of the economic and financial crisis that started in 2007 and 2008, the European Central Bank (ECB) has been gradually decreasing the policy rates with the aim of preventing deflation and reaching the inflation target. The ECB has additionally been using quantitative easing (QE). Recently, for example, non-financial corporate bonds have been added to the list of assets eligible for QE. These measures should, in turn, stimulate economic activity in the euro area economies. Nevertheless, decreasing the policy rates as well as using QE have an important side effect that interest rates go down.

Reducing interest rates shifts the yield curves down, which may have an adverse impact on banks and insurers. The reason is that their investment income drops in the low yield environment. In addition to problems on the asset side, some of the items on the liabilities side may inflate, at least in case of life insurers, e.g. because the discount rates applied to future payments are lower. This results in vulnerabilities in the banking and insurance sectors – profits and equity values of banks and insurance companies are lowered. On that account, low yields have been included in the European Systemic Risk Board (ESRB) overview of systemic risks.

Regarding banks, empirical evidence that interest rates and banks profitability are positively correlated is provided by Molyneux and Thornton (1992) and Bourke (1989), who consider interest rates a proxy for scarcity of resources, or more recently by Macit (2012) who deals with Turkish participation banks. Dorofti and Jakubik (2015) or Shiu (2004) provide evidence that low interest rates reduce insurers' profitability. The topic of the impact of protracted low interest rates on insurance companies is elaborated in detail by Antolin et al. (2011).

The aims of the diploma thesis will be to examine whether the low yield environment indeed has a negative impact on banks and insurers, and to quantify the effects on various segments of the banking and insurance industries. In the diploma thesis, we will focus on Europe, although the issue of the low yield environment may be considered global.

The reason for taking the equity price as the dependent variable in the thesis instead of balance-sheet indicators (e.g. profitability) is the forward-looking nature of equity prices. Equity prices reflect the overall situation of the financial institution, do not suffer from the short-term bias as much as balance-sheet indicators, and are more in line with the theoretical firm value maximization objective. Nevertheless, we need to make an assumption that markets have been determining equity prices correctly.

Overview of Research Questions:
- Does the low yield environment indeed have a negative impact on banks as well as insurers?
- Is the effect of the low yield environment more profound in case of banks or insurers? What is the size of the effect?
- Does the effect of the low yield environment differ significantly for various segments of the banking industry (retail vs. commercial vs. investment banks) and insurance industry (life vs. non-life insurers)?

Expected Contribution:
- In contrast to previous works on this topic, we will deal with banks and insurers at the same time. We will apply the same methodology to both banks and insurers, which will enable us to make direct comparisons. Moreover, the data will be collected individually for important banks and insurers. This means that institution-specific variables such as liquidity risk indicators will come into consideration, which cannot be captured in studies employing aggregated data. Last but not least, such an individual approach will allow us to conduct the analysis from the point of view of equity prices which is not common and will shed brighter light on how low interest rates influence banks and insurers.
- Determination and quantification of effects of low interest rates is crucial for regulators and policy makers. The analysis may also be useful for banks and insurers themselves.

Methodology:
- Econometric panel data approach
- From static panel data models to dynamic ones: using e.g. the GMM estimation technique described by Blundell and Bond (2000)
- The Blundell and Bond technique is commonly used to explain the drivers of banks and insurers performance -- for example by Ameur and Mhiri (2013) or Dorofti and Jakubik (2015)
- Dependent variable: equity price
- Considered independent variables: macroeconomic variables (interest rate, exchange rate, inflation rate, GDP growth, ...), institution-specific variables (liquidity risk indicators, ratio of non-performing loans to total loans in case of banks, real assets, equity to assets ratio, ...), other variables (dummy variable indicating the segment in which the institution operates, ...)

Outline:
- Introduction & Literature Review
- Data & Methodology
- Empirical Results & Robustness Checks
- Conclusion
Předběžná náplň práce v anglickém jazyce
As a consequence of the economic and financial crisis that started in 2007 and 2008, the European Central Bank (ECB) has been gradually decreasing the policy rates with the aim of preventing deflation and reaching the inflation target. The ECB has additionally been using quantitative easing (QE). Recently, for example, non-financial corporate bonds have been added to the list of assets eligible for QE. These measures should, in turn, stimulate economic activity in the euro area economies. Nevertheless, decreasing the policy rates as well as using QE have an important side effect that interest rates go down.

Reducing interest rates shifts the yield curves down, which may have an adverse impact on banks and insurers. The reason is that their investment income drops in the low yield environment. In addition to problems on the asset side, some of the items on the liabilities side may inflate, at least in case of life insurers, e.g. because the discount rates applied to future payments are lower. This results in vulnerabilities in the banking and insurance sectors – profits and equity values of banks and insurance companies are lowered. On that account, low yields have been included in the European Systemic Risk Board (ESRB) overview of systemic risks.

Regarding banks, empirical evidence that interest rates and banks profitability are positively correlated is provided by Molyneux and Thornton (1992) and Bourke (1989), who consider interest rates a proxy for scarcity of resources, or more recently by Macit (2012) who deals with Turkish participation banks. Dorofti and Jakubik (2015) or Shiu (2004) provide evidence that low interest rates reduce insurers' profitability. The topic of the impact of protracted low interest rates on insurance companies is elaborated in detail by Antolin et al. (2011).

The aims of the diploma thesis will be to examine whether the low yield environment indeed has a negative impact on banks and insurers, and to quantify the effects on various segments of the banking and insurance industries. In the diploma thesis, we will focus on Europe, although the issue of the low yield environment may be considered global.

The reason for taking the equity price as the dependent variable in the thesis instead of balance-sheet indicators (e.g. profitability) is the forward-looking nature of equity prices. Equity prices reflect the overall situation of the financial institution, do not suffer from the short-term bias as much as balance-sheet indicators, and are more in line with the theoretical firm value maximization objective. Nevertheless, we need to make an assumption that markets have been determining equity prices correctly.

Overview of Research Questions:
- Does the low yield environment indeed have a negative impact on banks as well as insurers?
- Is the effect of the low yield environment more profound in case of banks or insurers? What is the size of the effect?
- Does the effect of the low yield environment differ significantly for various segments of the banking industry (retail vs. commercial vs. investment banks) and insurance industry (life vs. non-life insurers)?

Expected Contribution:
- In contrast to previous works on this topic, we will deal with banks and insurers at the same time. We will apply the same methodology to both banks and insurers, which will enable us to make direct comparisons. Moreover, the data will be collected individually for important banks and insurers. This means that institution-specific variables such as liquidity risk indicators will come into consideration, which cannot be captured in studies employing aggregated data. Last but not least, such an individual approach will allow us to conduct the analysis from the point of view of equity prices which is not common and will shed brighter light on how low interest rates influence banks and insurers.
- Determination and quantification of effects of low interest rates is crucial for regulators and policy makers. The analysis may also be useful for banks and insurers themselves.

Methodology:
- Econometric panel data approach
- From static panel data models to dynamic ones: using e.g. the GMM estimation technique described by Blundell and Bond (2000)
- The Blundell and Bond technique is commonly used to explain the drivers of banks and insurers performance -- for example by Ameur and Mhiri (2013) or Dorofti and Jakubik (2015)
- Dependent variable: equity price
- Considered independent variables: macroeconomic variables (interest rate, exchange rate, inflation rate, GDP growth, ...), institution-specific variables (liquidity risk indicators, ratio of non-performing loans to total loans in case of banks, real assets, equity to assets ratio, ...), other variables (dummy variable indicating the segment in which the institution operates, ...)

Outline:
- Introduction & Literature Review
- Data & Methodology
- Empirical Results & Robustness Checks
- Conclusion
 
Univerzita Karlova | Informační systém UK