We study how the volume of derivatives
trading is associated with the return on assets (ROA), as well as the enterprise
value proxied by abnormal return (AR), before and after the US Financial
Crisis. Results suggest that before the crisis, the volume of over-the-counter
trading, which tends to be less strictly regulated and thus can be more
flexibly applied, is positively associated with AR and ROA, while exchange
trading is not. After the financial crisis, exchange trading, which is more
heavily regulated and thus has lower credit risks, is positively associated
with AR and ROA. This implies that the kinds of derivatives products having a
positive or negative effect on the enterprise value of financial institutions
may vary according to each period of the economy. Therefore, in full
consideration of the above, it is recommended that more appropriate
alternatives to the regulations and inspections should be provided
for derivatives products and trading methods of financial institutions.
Cite this paper
J. Yang, "Volume of Derivative Trading, Enterprise Value, and the Return on Assets," Modern Economy, Vol. 4 No. 8, 2013, pp. 513-519. doi: 10.4236/me.2013.48055.
 D. Ryu, J. Baek, J. Yang and J. Chae, “Derivatives Trading Volume and Abnormal Return,” Unpublished Manuscript, 2011.
 T. Kwon, R. Park and U. Chang, “Derivatives Use, Firm Value, Risk and Determinants: Evidence of Korean Firms,” Korean Journal of Futures and Options, Vol. 19, No. 4, 2011, pp. 335-362.
 A. Jalivand, “Why Firms Use Derivatives: Evidence From Canada,” Canadian Journal of Administrative Sciences, Vol. 16, No. 3, 1999, pp. 213-225.
 T. Brunzell, M. Hansson and E. Liljeblom, “The Use of Derivatives in Nordic Firms,” European Journal of Finance, Vol. 17, No. 5-6, 2011, pp. 355-376.
 A. S. Ahmed, E. Kilic and G. J. Lobo, “Effects of SFAS 133 on the Risk Relevance of Accounting Measures of Banks’ Derivative Exposures,” Accounting Review, Vol. 86, No. 3, 2011, pp. 769-804.
 X. Fu and S. A. Heffernan, “The Effects of Reform on China’s Bank Structure and Performance,” Journal of Banking and Finance, Vol. 33, No. 1, 1999, pp. 39-52.