Impact of Derivatives use on Performance of Pakistani Banks

Abstract

Purpose:  This study examines the impact of derivatives on the financial performance of Pakistani banks by looking at the impact of each derivative among the famous four. Forwards, Futures, Options, and Swaps. Design\Methodology\Approach: By taking data from the last 13 years, we incorporated the values of 14 banks. The analysis is carried out by using both OLS and GMM methods of technique to verify the robustness of the results. Originality/value:  The study adds value to the scare literature of Derivatives and performance relationship in Pakistan by using GMM for endogeneity issues. Finding: This paper provides evidence that Pakistani banks are using derivatives for hedging purposes rather than speculation. Use of Forwards and Swaps is significant and impacts positively on Bank’s performance as compared to the other two. Keywords: Bank Performance; Derivatives; Hedging; Speculation; GMM