This was the proposal from which you will write a research similar to the one in PDF file.

If you
look at that PDF you will realise there is a stage the paper analysed the data. So kindly find and
send the data you are likely to use in the research. Could be number of banks, people to interview
etc. These ones you can guess but be sure to use them further.

Are UK banking stocks more volatile than

other UK sectors' stocks?

Project of Dissertation

Batarfi, Muath

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Table of Contents
ABSTRACT................................................................................................................................. 4
1. SUMMARY........................................................................................................................... 5
2. PROBLEM STATEMENT AND RESEARCH QUESTIONS...................................................5
3. AIMS AND OBJECTIVES.....................................................................................................5
4. RATIONALE / JUSTIFICATION............................................................................................6
5. LITERATURE REVIEW........................................................................................................6
6. RESEARCH METHODS.....................................................................................................10
7. ETHICAL CONSIDERATIONS............................................................................................11
8. TIMESCALE / PLAN........................................................................................................... 12
9. RESOURCES / COSTS......................................................................................................12
REFERENCES.......................................................................................................................... 14

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ABSTRACT

The objective of the research is to determine the volatility of UK banking stocks compared to the
volatility of stocks from other UK industries. The research utilised information from different
databases which have information on stock prices such as Yahoo Finance. The research was
carried out over the next three months from the submission of the research proposal to the
completion of the write-up of the dissertation.

The research question is the following: Are UK banking stocks more volatile than other UK
sectors' stocks? The focus of this research question was the comparison of the volatility of the
stocks of the different industries in the UK specifically, a comparison of the UK banking sector
volatility with the volatility of the other sectors in the UK. The main aim of the research was to
analytically compare the volatility of the stocks of the UK banking sector with the volatility of
the stocks in other UK sectors. The objectives of the research were as follows: to determine the
current research views and insights on comparison of volatility of stocks from different
industries; to analyse statistically the volatility of the UK stocks with a particular focus of the
UK banking sector versus the volatility of other UK sectors; and, to evaluate the key reasons for
the differences in volatility of the UK banking sector versus the other sectors in the UK.

The rationale for the research was to understand the differences in stock volatility of the UK
banking sector versus as compared to other sectors in the UK, and to determine the possible
drivers of the differences. This provided further learning of the developments in the market that
could explain the differences in volatility and to compare this understanding with the theories on
the drivers of stock volatility.

The research involved the collection of quantitative data and qualitative data. For the stock
volatility analysis and the comparison of volatility across the UK banking sector and other UK
sectors, the stock data for different companies and industries formed the quantitative data. For
the qualitative data, this will be formed from the interviews that the researcher will conduct with
the focus on the understanding of the results of the comparison of the volatility of the stocks of
the different UK sectors.

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1. SUMMARY

Like it would be compared to human beings, stocks do have what would be called their
personalities. There are some stocks that are very volatile and keep on bouncing rapidly with the
price going up and down in the short term. Some of the stocks are also known to be very docile
and make very slow movements with their prices making very small changes but in a steady state
for quite a long time. Volatility experienced in stocks like the one that was witnessed by the stock
market crash of 1987, 1997 Asian crisis, 2000 collapse of the dotcom stocks, and the recent
spillover of the Chinese market are caused by a number of factors
The objective of the research was to determine the volatility of UK banking stocks compared to
the volatility of stocks from other UK industries. The research utilised information from
different databases which have information on stock prices such as Yahoo Finance. The research
was carried out within three months from the submission of the research proposal to the
completion of the write-up of the dissertation.

The literature review showed that there have been reviews of the volatility of stock market
indices and also of industries in different markets. The indications are that some industries can
indeed be more volatile than other industries. However, it would be difficult to generalise the
results as the industries in one country may have different features and characteristics in other
countries. The focus of this research was the gap that on the stock volatility of UK banks and
other sectors, as there had not been any specific studies that compare the volatility of the UK
banking sector versus the volatility of other sectors in terms of stock movements.

2. PROBLEM STATEMENT AND RESEARCH QUESTIONS

The research question is the following: Are UK banking stocks more volatile than other UK
sectors' stocks? The focus of this research question is the comparison of the volatility of the
stocks of the different industries in the UK with specifically, a comparison of the UK banking
sector volatility with the volatility of the other sectors in the UK.

3. AIMS AND OBJECTIVES

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The main aim of the research was to analytically compare the volatility of the stocks of the UK
banking sector with the volatility of the stocks in other UK sectors. The objectives of the
research were as follows:
 To determine the current research views and insights on comparison of volatility of stocks
from different industries. As other studies would have been conducted on volatility of
stocks, it would be helpful to understand what studies have been executed and what the
insights and the results have been from these academic studies.
 To analyse statistically the volatility of the UK stocks with a particular focus of the UK
banking sector versus the volatility of other UK sectors. The research will utilise statistical
analysis to assess the volatility of the stocks of different industries in the UK.
 To evaluate the key reasons for the differences in volatility of the UK banking sector
versus the other sectors in the UK. This will provide further thoughts on drivers of
volatility and complete the research focus with the explanation of the drivers of the results
of volatility.
Marck, Davis. (2012). The 8 Most Volatile Sectors. Retrieved from

http://www.investopedia.com/financial-edge/0712/the-8-most-volatile-sectors.aspx

4. RATIONALE / JUSTIFICATION

The rationale for the research is to understand the differences in stock volatility of the UK
banking sector versus other sectors in the UK, and to determine the drivers of the differences.
This will provide further learning of the developments in the market that could explain the
differences in volatility and to compare this understanding with the theories on the drivers of
stock volatility.

5. LITERATURE REVIEW

There have been various studies conducted on stock volatility and stock market volatility. These
studies have had different areas focused on but these are all related I that stock market volatility

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or stock volatility were the areas that the studies centred on. Thomann (2013) focused on the
impact of calamities on the stocks of insurance firms. This is almost similar to the work
envisioned in that this considered the driver of the stock volatility with the study focusing on the
volatility of the group of stocks in the insurance sector. In this case, the insurance sector stocks
were considered to have increased volatility during specific periods such as the period following
calamitous events. Nevertheless, the study is not directly applicable as there is no comparison
executed between the volatility of different sectors.

Another study looking at volatilities of stocks is the work of Wang (2013) which focused on the
impact of foreign ownership on stock volatility. This is similar in that there is an assessment of
stock volatility. In this research, the difference is the feature of the stock with foreign ownership
as the main difference in the comparison conducted, i.e. the stocks with foreign ownership and
the stocks without or with limited foreign ownership. The difference with the proposed study is
that this studies if Wang (2013) does not incorporate any comparison of the volatilities across
sectors or industries. Song&Zheng (2014) also reviewed the impact of ownership structure on
stock volatility but, similar to Wang (2013), did not review the differences across the sectors in
terms of the volatilities of the stocks.

Schwert (2011) reviewed the impact of the global financial crisis on stock volatility. This is
related to the study on that the impact of the financial crisis is considered in the study. For the
study to be conducted, the period considered was chosen in order for the impacts of the global
financial crisis to have been taken out of the stock already so that this would not have any
implications on the stock volatility comparison across sectors. Schwert (2011) noted that the
global financial crisis resulted in the increase in volatility for most of the stocks compared to
previous performance prior to the global financial crisis. This is interesting and confirms the
view and assumption of the researcher of the impact of the global financial crisis. This is the
reason for the choice of the period for the comparison of the different sectors in the UK in terms
of stock market volatility.

The study of Black, Buckland&Fraser (2002) would seem to be closest to the current study. The
research of Black, Buckland&Fraser (2002) focused on the UK stocks and, in particular, on UK

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sector stocks. The main differences with the proposed study are that: (1) the period is very
different as the study was conducted for the period from 1968 to 2000; and (2) the sector focus
was not a comparison of the different sectors but a comparison of the evolution of volatility for
each sector compared to other parts of the period considered. For the first main difference, the
period in this study of Black, Buckland&Fraser (2002) was much longer providing the study the
opportunity to review stock market volatility evolution during the period. For the second main
difference, the focus was actually a comparison of the volatility of the sector stocks versus
different periods in the history. This was therefore a different focus than the current proposed
study.

Another study which focused on sectors was the work of Jayasinghe,Tsui& Zhang (2014). While
this study utilised sectors for comparison purposes, the focus was on the impact of exchange rate
exposure on sector volatility in the stock market. There is similarity in the study in that sectors
are used for comparison but the study of Jayasinghe,Tsui& Zhang (2014) looked at how sector
volatilities were impacted by the exchange rate exposure of the companies in the sector. This is a
different focus from the proposed study which would review the comparison of the sector
volatilities without any specific factor included for the comparison other than the differences
between the sectors that would impact the volatility of the sectors. The study of Kumar (2013)
also focused on the impact of the exchange rates on the volatility of the stocks. The study of
Kumar (2013) did not compare sectors in terms of the volatilities of the sectors.

The study of Faff, Hodgson& Kremmer (2005) focused on financial sector stocks. While this is
similar to the proposed study in focusing on banking sector stocks, there are several key
differences in the research conducted by Faff, Hodgson& Kremmer (2005). The first difference is
that Faff, Hodgson& Kremmer (2005) focused on the impact of the interest rates on the volatility
of the stocks in the banking sector. This is in comparison to the proposed study which tries to
identify the drivers that have an impact on the volatility and, more specifically, on the differences
in the volatility of the sectors in the UK.

The study which has been identified to have a close link with the proposed study is the research
of Hammoudeh et al (2010) which reviewed the volatilities of many different sectors and sub-

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sectors in the US. The focus of the research was on the impact of financial and economic risks,
and how these risks impacted the sector volatilities. There are similarities and differences with
the proposed research. One similarity is that the study focused on sector volatilities which is
what the proposed research will also focus on with a specific comparison of the UK banking
sectors versus the other UK sectors. Another similarity is that the study of Hammoudeh et al
(2010) focused on a comparison of the sector volatilities. This is what the proposed study will
also focus on. There are differences between the work of Hammoudeh et al (2010) and the
proposed research. The first difference is that the work of Hammoudeh et al (2010) focused on
financial and economic risks, and the impact of these risks on the sector volatilities. The
proposed study will look at the differences in volatilities and identify the drivers of the
differences in the volatilities between the UK banking sector and other UK sectors. Another
difference is the approach taken as the study of Hammoudeh et al (2010) took an approach that
focused on financial and economic risks as key drivers and assessed the impact of these as the
drivers of changes in sector volatilities. In the proposed study, the research will not have any
identified drivers of the differences in sector volatilities, and instead will have the identification
of the drivers as one of the key outputs of the research.

The research of Fedderke (2004) is similar in that this research looked at sector volatilities. As
with many of the research studies identified to have looked at volatilities in general and sector
volatilities in particular, this study assessed the impact of investment in fixed capital stock as the
driver of the changes in sector volatility. The research identified that investment in fixed capital
stock has an impact on the sector volatilities as the higher investments in fixed capital stock
impacted sector volatilities. This could be a key driver that could impact the differences in sector
volatilities in the proposed study. However, this will not be a focus for the research with the
investment in fixed capital stock as a driver that will be noted in case this is mentioned by the
primary research respondents.

In Greece, Apergis (2012) studied the impact of the financial crisis and the real estate market on
the stock volatility of the financial sector firms. While the study focused on banking firms
similar to the focus of the proposed research. The research actually centred on the impact of the
financial crisis the developments in the real estate market. These are factors that are not part of

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the proposed research but could be factors that primary research respondents ay mention as to the
drivers of the differences in the volatilities of the UK banking stocks and the other UK sector
stocks.

The discussion of the different studies that reviewed and considered different aspects of similar
issues such as sector volatility and financial services sector volatility shows that there is a gap in
the research. There has not been any specific study in recent years conducted that focuses on the
comparison of the sector volatilities of the UK banking sector versus other UK sectors. The
proposed research will therefore focus on this gap and address the lack of specific research that
can provide the explanation for the differences in the volatilities of the UK banking sector versus
the other UK sectors.

6. RESEARCH METHODS

The research will involve the collection of quantitative data and qualitative data. For the stock
volatility analysis and the comparison of volatility across the UK banking sector and other UK
sectors, the stock data for different companies and industries will form the quantitative data.
This will be utilised in the statistical analysis with the researcher using the comparison of the
volatility of the sector stocks versus the UK market benchmark. The FTSE 100 index will be
used as the market benchmark. The comparison of the volatility of the stock market across the
sectors will utilise the comparison of the beta figures.

For the statistical analysis, the focus of the stock data with the member firms of the FTSE 100.
This defines the scope of the companies that will be included in the research on the comparison
of the stock volatility of the UK banking sector versus the other UK sectors. The period that will
be utilised will be the period from January 2010 to December 2014. This forms a five-year
period for the comparison. The period was chosen for two main reasons. The first reason is that
this period is post the global financial crisis which provides an analysis that does not include the
volatility that was inherent during the global financial crisis. The inclusion of the period until
December 2014 takes out the large part of the period where the global financial crisis had
impacted the stocks and influenced the volatility of the sectors in the UK. The second reason is

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that this forms a five-year period which is the suggested time period in the calculation of the beta
of a firm or industry with the five year period incorporating the minimum time period that allows
for a proper calculation of the beta for the stocks in the analysis.

For the qualitative data, this will be formed from the interviews that the researcher will conduct
with the focus on the understanding of the results of the comparison of the volatility of the stocks
of the different UK sectors. After the completion of the statistical analysis to determine the
volatility of the UK banking sector in comparison with the other UK sectors, the researcher will
form the interview questions to determine the rationale for the drivers of the differences of the
volatility of the UK banking sector versus the other UK sectors. The researcher will conduct ten
interviews with the researcher aiming to interview equity analysts to get their views on the
differences from the results of the statistical analysis conducted by the researcher.

The use of quantitative research and qualitative research forms an approach referred to as mixed
methods. There has been increased use of the mixed methods approach in recent years given the
value seen in the use of the approach (Mertens, 2014). The mixed methods research approach is
considered to lead to a more robust set of results with the combination of the quantitative
research and the qualitative research providing a triangulation of the results and the confirmation
of the results from the two different research approaches forming the mixed methods research
approach (Mertens, 2010). For this research, the quantitative research approach involves the
statistical analysis of the stock volatility of the different UK sectors. The qualitative research
then complements the results of the statistical analysis with the qualitative research focusing on
the insights from the equity analysis and the central view on the drivers of the differences of the
volatility figures of the different UK sectors.

7. ETHICAL CONSIDERATIONS

The key ethical considerations are the following: informed consent; confidentiality; and,
anonymity. Each of these key principles of research ethics will be applied in this research
particularly given that the research involves primary research. For informed consent, this means
that the researcher will provide the primary research respondents with the background and

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objectives of the research in order to ensure that the respondents are informed. In addition, the
researcher will have the respondents provide their consent and agreement to their participation in
the primary research being conducted for the study. The researcher will also ensure the
confidentiality of the research and the responses of the respondents. This means that the
researcher will not share the research results and primary research responses with anyone other
than the individuals directly involved in the research such as the supervisor of the researcher.
Finally, the researcher will also ensure that the primary research respondents will have their
anonymity intact. This means that there will not be any link written that aligns the responses of
the primary research respondents with their responses. The results from the primary research
will be consolidated so that it will not be possible to attribute the responses to each of the
primary research respondents.

8. TIMESCALE / PLAN

The timescale for the research is as presented below. This is set out over a period of twelve
weeks which corresponds to the three months indicated earlier for the researcher to
complete the research.
Activity Timing
Submit research proposal Week 1
Conduct literature review Week 2 to week 5
Prepare for primary research Week 2
Define primary data needed for statistical analysis Week 3
Retrieve relevant stock data Week 4 to week 5
Conduct statistical analysis Week 6
Develop initial insights from results of statistical analysis Week 6
Conduct primary research Week 7 to week 8
Collate primary research results Week 9
Begin write-up of dissertation Week 9
Get feedback on draft of dissertation Week 11
Incorporate feedback and revise draft of dissertation Week 11
Submit dissertation Week 2

9. RESOURCES / COSTS

The main resources to be used in the research will be the time and effort of the researcher. There
will be no costs expected that the researcher will incur. The primary research will be carried

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through telephone interviews. This will minimise any costs that the researcher will incur in the
conduct of the research. The researcher will conduct statistical analysis of the quantitative data
for the study. The retrieval of the data and the use of the software for the statistical analysis are
not expected to lead to any costs for the researcher to incur as the data can be retrieved from
publicly available data sources or from University databases. The software will also be similarly
available from the researcher’s own set of applications or from the software applications
available in the University for the students.

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REFERENCES

Apergis, N. (2012) Financial crisis and the real estate market in Greece: the impact on bank stock
prices. International Journal of Economics and Business Research, Volume 4 (5)

Black, A., Buckland, R., &Fraser, P. (2002) Changing UK stock market sector and sub‐sector
volatilities, 1968‐2000. Managerial Finance, Volume 28 (8)

Faff, R. W., Hodgson, A., & Kremmer, M. L. (2005) An Investigation of the Impact of Interest
Rates and Interest Rate Volatility on Australian Financial Sector Stock Return Distributions.
Journal of Business Finance & Accounting, Volume 32 (5‐6)

Fedderke, J. (2004) Investment in Fixed Capital Stock: Testing for the Impact of Sectoral and
Systemic Uncertainty. Oxford Bulletin of Economics & Statistics, Volume 66 (2)

Hammoudeh, S., Yuan, Y., Chiang, T., & Nandha, M. (2010) Symmetric and asymmetric US
sector return volatilities in presence of oil, financial and economic risks. Energy Policy, Volume
38 (8)

Jayasinghe, P., Tsui, A. K., & Zhang, Z. (2014) Exchange Rate Exposure of Sectoral Returns and
Volatilities: Further Evidence From Japanese Industrial Sectors. Pacific Economic Review,
Volume 19 (2)

Kumar, M. (2013) Returns and volatility spillover between stock prices and exchange rates
Empirical evidence from IBSA countries. International Journal of Emerging Markets, Volume 8
(2)

Mertens, D. (2014) A Momentous Development in Mixed Methods Research. Journal of Mixed

Methods Research, Volume 8 (1)

Mertens, D. (2010) Transformative Mixed Methods Research. Qualitative Inquiry, Volume 16 (6)

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Schwert, G. W. (2011) Stock Volatility during the Recent Financial Crisis. European Financial
Management, Volume 17 (5)

Song, X., &Zheng, W. (2014) Ownership structure, stock volatility and analyst independence
Evidence from China. China Finance Review International, Volume 4 (2)

Thomann, C. (2013) The Impact of Catastrophes on Insurer Stock Volatility. Journal of Risk and
Insurance, Volume 80 (1)

Wang, J. (2013) The Impact of Foreign Ownership on Stock Volatility in Indonesia. Asia-Pacific
Journal of Financial Studies, Volume 42 (3)

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