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Title - The Journal of Risk Finance - Are bank stocks sensitive to risk management?

Authors - Rudra Sensarma and M. Jayadev


Objective- This paper attempts to summarize the information contained in bank
financial statements on the risk management capabilities of banks and then
ascertains the sensitivity of bank stocks to risk management.
Sampling - We have collected data of all state-owned (public sector) and
domestic private sector banks operative in India during the period of 1998-1999 to
2005-2006 for this study. Our sample excludes foreign banks operating in India.
Based on these criteria, we've covered all the 62 public and private sector banks
existing during the study period and therefore the financial information is collected
from Capitaline, which is a database of Indian company finances just like the
international Compustat database.
Statistical Tools Used - Using the financial statements we computed four
accounting ratios depicting the risk management capabilities of banks. We collected
capital adequacy ratio data from annual reports of banks. To measure the impact of
risk management scores on shareholder returns, we computed annualized
compounded returns based on the daily share price data of listed banks available in
Capitaline.
Variables Used- Accounting Ratios, Capital adequacy ratio & annualized
compounded returns
Findings / Conclusions
This paper examines risk management capabilities of commercial banks and
investigates its impact on stock market returns. So we have integrated several
accounting and financial economics literature issues. We have calculated risk
management scores of Indian commercial banks for the period 1999-2006 using
information contained in financial statements through the help of factor analysis
technique and discriminant analysis. The calculated scores shows that risk
management capabilities of banks have improved over time with a recent decline in
the last few years. We also found out that stock returns respond positively to risk
management capabilities using the impact of risk management scores on stock
market returns of bank. Major Findings:

Suggests a different way of looking at bank financials from the risk


management perspective
Using multivariate techniques the research paper develops quantitative
summaries of bank's risk management capabilities
Risk management is an important determining factor for stock returns of
bank
The banks that have better risk management capabilities give their
shareholders more wealth

Title - Dividend Yields and Stock Returns: Evidence of Time Variation between Bull
and Bear Markets
Authors-

Michael J. Gombola and Feng-Ying L. Liu

Objective This paper documents persistent shifts in the relationship between


stock returns and dividend yields over bull and bear markets.
Sampling - The sample consists of 1,107 companies with continuous data for dividends,

prices, and firm size in the 1988 Compustat PDE and INDUSTRIAL tapes during the fifteenyear period from January 1969 to December 1984.
Data Used- For each month the overall sample is divided into six portfolios, five
ranked according to dividend yield quintile and a sixth portfolio of zero-dividend
firms. The yield measure employed is the long-run measure. The short-run measure
used here differentiates between the yield in those months when the stock goes
exdividend and months when it does not. The long-run measure defines yield on an
annual basis.
Statistical Tools Used - Dividend yield is calculated as the study extends on
examining the yield-return relations. Yield measure also helps in comparing the
results. Another long run dividend yield method is adopted which exclude extra
dividends in the calculation of yield. Portfolio returns are calculated using equally
weighted returns for securities in each portfolios. A time series is produced which
helps in the direct comparison with the results of Lockwood and McInish, whose
sample periods ends at the same time.
Variables Used - Rit is return for portfolio i in the month t. Rft is the riskless rate of
return in the month t. DBt is a dummy variable for the presence or absence
of bear markets. Rmt is the return on the market portfolio.
Findings / Conclusion:
Results show that average monthly stock returns are positively associated to
dividend yields during bear markets and negatively associated to dividend yields
during bull markets for the whole study period extending from 1970 through 1984,
as well as for 3 non-overlapping 5 year sub-periods.
Even when we control the market risk, firm size, and the January effects, returns are
positively associated to dividend yields during bear markets and negatively during
bull markets.
High yield stocks show better performance during bear markets than a constantcoefficient market model would predict. This result supports that high-yield stocks
are more resistant to market declines than are low-yield stocks.

Resistance to price declines during bear markets for high yield stocks is shown
regardless of the particular definition of bull and bear markets. Using a short-run,
up-versus-down market definition, the resistance is manifested in higher returns
throughout bear markets.
The beta shifts throughout bear markets for high yield stocks are significantly
different from shifts for low yield stocks.
The relationship between return and yield can be specific to any period under
examination

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