Providing an operational technique for hedging interest rate risk with debt issues in Iran

Document Type : Original Article

Authors

1 PhD. Student in Financial Engineering, Department of Financial Management, Faculty of Management and Economy, Science and Research Branch, Islamic Azad University, Tehran-Iran.

2 Prof., Department of Financial Management, Faculty of Management and Economy, Science and Research Branch, Islamic Azad University, Tehran-Iran.

3 Assistant Prof., Department of Financial Management, Tehran North Branch, Islamic Azad University, Tehran-Iran,

4 Assistant Prof. Department of Financial Management, Electronic Campus, Islamic Azad University Tehran-Iran.

5 Associate Prof., Department of Economics, Faculty of Management and Economy, Science and Research Branch, Islamic Azad University, Tehran-Iran.

10.30495/ijfma.2023.70989.1952

Abstract

Interest rate risk is one of the most important financial risks that economic enterprises faced. This risk is actually the probability of a decline in the value from unexpected fluctuations in interest rates in the market. Firms use different analytical models to evaluate the interest rate assessment and the effect of interest rate fluctuations on liabilities and assets and their cash flows. One of the risk hedging strategies is risk management using operational techniques.
In this research, with the aim of proposing an operational technique for hedging interest rate risk, the sensitivity coefficient of firms' stock returns to interest rate fluctuations in the period of 2011 to 2021 and after entering the debt market has been investigated and analyzed. In order to measure the interest rate sensitivity coefficient, a model similar to the model of Flannery and James (1984) and Deleze and Korkeamaki (2018) has been used. In this research, the autoregressive integrated moving average (ARIMA)model has been used to estimate the unexpected part of changes in interest rates, and the rolling window regression and panel data models have been used to estimate the interest rate sensitivity coefficient and analyze and investigate this sensitivity coefficient. The result of the research shows a decrease in the sensitivity coefficient to interest rate changes after the first entry into the debt market and finally the facilitation of interest rate risk management among debt bond issuers.

Keywords

References

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