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The determinants of bank stock return's co-movements in East Asia

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  • Carlos Bautista

    ()
    (University of the Philippines)

  • Philippe Rous

    ()
    (Universite de Limoges, LAPE)

  • Amine Tarazi

    ()
    (Universite de Limoges, LAPE)

Abstract

We examine co-movements of bank stock returns in eight East Asian countries after the 1997 crisis and attempt to determine the factors that influence them. Unlike Bautista and al (2008) who focus on a measure of the contribution of banks to systemic risk, we consider the return correlations among banks within each country which are used as a dependent variable in weighted least squares regressions. The factors were chosen from a wide range of accounting and market-based indicators, but also macroeconomic and financial development data, using a stepwise procedure. The study finds that financial development is one of the significant determinants of return co-movement but that the share of interbank activities in the balance sheet is not a significant factor. A strong link is found between the bank return co-movements and bank default risk measured by a z-score. To a lesser extent, the share of loan activities in a bank's balance sheet, which is a proxy of opacity, is also a significant factor of the level of correlation.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 3 ()
Pages: 1596-1601

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Handle: RePEc:ebl:ecbull:eb-09-00095

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Keywords: Bank contagion; East Asia; Correlation of bank stock returns;

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References

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  1. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, Elsevier, vol. 25(5), pages 702-718, August.
  2. Gropp, Reint & Moerman, Gerard, 2003. "Measurement of contagion in banks' equity prices," Working Paper Series 0297, European Central Bank.
  3. Saxonhouse, Gary R, 1976. "Estimated Parameters as Dependent Variables," American Economic Review, American Economic Association, vol. 66(1), pages 178-83, March.
  4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  5. Ilan Goldfajn & Taimur Baig, 1999. "Financial market contagion in the Asian crisis," Textos para discussão 400, Department of Economics PUC-Rio (Brazil).
  6. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  7. Gianni De Nicoló & Myron L. Kwast, 2002. "Systemic Risk and Financial Consolidation," IMF Working Papers 02/55, International Monetary Fund.
  8. Carlos Bautista & Philippe Rous & Amine Tarazi, 2008. "The Determinants of Domestic and Cross Border Bank Contagion Risk in Southeast Asia," Revue économique, Presses de Sciences-Po, vol. 59(6), pages 1215-1242.
  9. De Nicolo, Gianni & Kwast, Myron L., 2002. "Systemic risk and financial consolidation: Are they related?," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 861-880, May.
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Cited by:
  1. Soedarmono, Wahyoe & Tarazi, Amine, 2013. "Bank opacity, intermediation cost and globalization: Evidence from a sample of publicly traded banks in Asia," Journal of Asian Economics, Elsevier, vol. 29(C), pages 91-100.

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