The performance of UK financial institutions over periods of market stability and volatility
: 1980-2015

  • Stephen Kawas

    Student thesis: Doctoral Thesis


    This thesis is concerned with an empirical investigation of the financial performance of UK financial institutions over the period 1980-2015. This period reflects numerous changes in the development of the UK economy and in the evolution and financial deepening of its financial system including also the deregulation and liberalisation of financial markets that culminated in financial institutions being able to compete actively in markets for financial services where previously they were prohibited; the global financial crisis of 2007-2009 and the Eurozone debt crisis which had a strong negative impact on the UK financial sector and resulted in the move away from an informal regulatory structure toward a more rigorous and formal structure of regulation. These developments make it necessary to investigate empirically important factors that shed light on the performance of UK financial institutions which should be of interest to policy makers and regulatory authorities.
    Following the introduction to the thesis in chapter one and a review of the literature which is presented in chapter two, there are four themes which is the primary focus of this thesis. The first theme, which occupies chapter three investigate, using a panel data regression approach, whether a number of the key drivers of performance affect the financial performance of UK financial institutions over crisis and non-crisis periods, and whether, by means of EGARCH, the risk taking behaviour of financial institutions have a decided impact on their financial performance. The findings indicate that the strength of the UK economy underpins the overall profitability of the sectors. Additionally, we provide strong evidence of risk undertaken is a key variable which impacts profitability in all financial sectors, confirming the risk-return hypothesis. The banking sector is also able to exert greater performance through a highly concentrated market. The second theme, taken up in chapter four, investigates the changing risk profile of UK financial institutions using rolling regression, the Kalman filter, DCC-GARCH, bivariate BEKK GARCH and bivariate GJR-GARCH methodologies. The results confirm the literature by determining beta to be a time-varying variable. We also contribute to the literature by demonstrating the insurance and banking sectors possesses greatest systemic risk throughout our sample years, which can be attributed to their central role in financial markets, risk management and their contribution to the economy. The third theme, which is the focus of chapter five examines the impact of macroeconomic news and other announcements on the stock prices of UK financial institutions. We utilise the event study, SUR and GJR-GARCH techniques to determine the impact of macroeconomic news, which we demonstrated investors were able to distinguish the risk levels of UK banks. Moreover, during periods of crisis government announcements are just as effective as the Bank of England to restore confidence in the financial system. We demonstrated how integrated financial markets are in today’s economic climate due to globalisation. Whereby, announcements from Western economies had a greater impact on UK non-bank financials than combined Bank of England and Government announcements. The fourth theme, which is contained in chapter six assessed the impact of regulatory changes by the UK authorities and other relevant regulatory bodies towards the security prices of UK financial institutions through event study, EGARCH and VAR GJR-GARCH techniques. The Vickers report sought to implement new standards to create financial stability and avert future crisis periods. This led to negative impacts on equity prices on the financial sectors, demonstrating the risk-return hypothesis, along with higher capital requirement regulations mirroring this result.
    The research provides a basis to develop in-depth knowledge of the UK financial system in order to improve risk management, allocation of resources, decision making by financial institutional managers’ and aid policy makers future decisions to improve market conditions for financial institutions, which will aid overall economic prosperity.
    Date of AwardAug 2016
    Original languageEnglish
    Awarding Institution
    • University of Portsmouth
    SupervisorEverton Dockery (Supervisor)

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