This paper studies the magnitude and determinants of interest rate risk (IRR) of listed U.S. bank holding companies. As our first contribution, we test whether banks avoid exposures to IRR as prescribed in classic bank hedging literature. To do so, we use a state space model and Kalman filter...

This paper explores the extent to which interest risk exposure is priced in bank margins. Our contribution to the literature is twofold: First, we extend the Ho and Saunders (1981) model to capture interest rate risk and expected returns from maturity transformation. Banks price interest risk...

This paper explores the extent to which interest risk exposure is priced in bank margins. Our contribution to the literature is twofold: First, we present an extended model of Ho and Saunders (1981) that explicitly captures interest rate risk and returns from maturity transformation. Banks price...

This paper is the first to quantify and analyze the dynamics of market risk (MR) and interest rate risk (IRR) of the system of US bank holding companies (BHCs) based on time-varying risk exposures estimated using the Kalman filter. These dynamics can be explained to a considerable degree by the...