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Early warning indicators of banking crisis and bank related stock returns

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  • Sohn, Bumjean
  • Park, Heungju

Abstract

This study examines whether early warning indicators of banking crisis can predict the U.S. bank related stock returns in credit tightening periods. We use the credit-to-GDP gap and the credit growth as the early warning indicators of banking crisis. Using bank stock returns and stock returns of bank dependent firms, we find the credit growth forecasts both of the bank related stock returns better than the credit-to-GDP gap in periods of tightened credit conditions. Our results suggest that the credit growth is more informative in predicting bank sector crisis than the credit-to-GDP gap.

Suggested Citation

  • Sohn, Bumjean & Park, Heungju, 2016. "Early warning indicators of banking crisis and bank related stock returns," Finance Research Letters, Elsevier, vol. 18(C), pages 193-198.
    • Handle: RePEc:eee:finlet:v:18:y:2016:i:c:p:193-198
    DOI: 10.1016/j.frl.2016.04.016
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    References listed on IDEAS

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    Cited by:

    1. Berlinger, Edina, 2017. "Implicit rating: A potential new method to alert crisis on the interbank lending market," Finance Research Letters, Elsevier, vol. 21(C), pages 277-283.
    2. Kurowski, Łukasz Kamil & Rogowicz, Karol, 2017. "Negative interest rates as systemic risk event," Finance Research Letters, Elsevier, vol. 22(C), pages 153-157.
    3. Wilson, Linus, 2023. "Profitable timing of the stock market with the senior loan officer survey," Finance Research Letters, Elsevier, vol. 54(C).
    4. Helene Olsen & Harald Wieslander, 2020. "The Impact of Monetary Policy on Leading Variables for Financial Stability in Norway," Working Papers No 02/2020, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    5. Krzysztof Biegun & Jacek Karwowski & Piotr Luty, 2021. "How Effective is Macroeconomic Imbalance Procedure (MIP) in Predicting Negative Macroeconomic Phenomena?," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 822-837.

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    More about this item

    Keywords

    Credit cycles; Banks; Bank dependent firms; Stock return predictability;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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