The differential long-term and short-term impacts of risk factors on stock returns of financial holdings and traditional banks

<p>This study investigates the differential short-term and long-term impacts of macroeconomic risk factors, specifically interest rate, exchange rate, and credit risk, on the stock returns of financial holding companies and traditional banks in Taiwan. Utilizing a Transfer Function-Noise (TFN) model and numerical analysis methods, we analyze monthly data from 2000 to 2023. To address the challenge of directly testing long-term effects involving ratio distributions, this study proposes a novel bootstrapping procedure to re-generate the multivariate probability distribution of polynomial ratios, enabling statistical testing of long-term coefficients. Outlier detection techniques are employed to mitigate bias. Our findings reveal significant heterogeneity in short term responses to these risk factors across institutions, with financial holdings exhibiting greater sensitivity. Long-term effects, however, show convergence, suggesting similar risk management strategies over time. These insights have important implications for investment strategies, risk management practices, and financial policy formulation.</p> <p> </p>