• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site

Working paper

Do Hedging and Trading Derivatives Have the Same Impact on Public European Banks' Value and Share Performance?

Гомаюн Н. И., Penikas H. I., Titova Y.

In most cases the ultimate goal of a  bank  is profit maximization.  That depends on what derivatives one uses. Thus the objective of this research is to examine the relationship between a bank’s value and characteristics of derivatives it subscribed to. The financials from 2005 to 2010 of 130 European public banks countries are examined. The study is based on two sets of data: the
first one  contains the accounting data on balance sheets and the profit and loss accounts  from Bankscope from 2005  to 2010, while the second one includes the manually collected data from the notes to the financial statement disclosures. Regression analysis is used to trace the impact of derivative use  on bank’s value. Time effects and cross-country differences are controlled for.
Two key  research implications are as follows. The  return on  hedging  derivatives is positively associated with the growth in bank’s stock  returns, whereas trading derivatives’ notional value negatively impacts both Tobin’s q and ROAA, and positively impacts risk of the bank’s stocks.