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Bank stock returns and economic growth

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  • Cole, Rebel A.
  • Moshirian, Fariborz
  • Wu, Qiongbing

Abstract

Previous research has established (i) that a country's financial sector influence future economic growth and (ii) that stock market index returns affect future economic growth. We extend and tie together these two strands of the growth literature by analyzing the relationship between banking industry stock returns and future economic growth. Using dynamic panel techniques to analyze panel data from 18 developed and 18 emerging markets, we find a positive and significant relationship between bank stock returns and future GDP growth that is independent of the previously documented relationship between market index returns and economic growth. We also find that much of the informational content of bank stock returns is captured by country-specific and institutional characteristics, such as bank-accounting-disclosure standards, banking crises, enforcement of insider trading law and government ownership of banks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 32 (2008)
Issue (Month): 6 (June)
Pages: 995-1007

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Handle: RePEc:eee:jbfina:v:32:y:2008:i:6:p:995-1007

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Citations

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Cited by:
  1. Perera, Anil & Ralston, Deborah & Wickramanayake, Jayasinghe, 2013. "Central bank financial strength and inflation: Is there a robust link?," Journal of Financial Stability, Elsevier, Elsevier, vol. 9(3), pages 399-414.
  2. Kendall, Jake, 2009. "Local financial development and growth," Policy Research Working Paper Series 4838, The World Bank.
  3. M Mafizur Rahman & M Salahuddin, 2010. "The determinants of economic growth in Pakistan: Does stock market development play a major role?," Economic Issues Journal Articles, Economic Issues, Economic Issues, vol. 15(2), pages 69-86, September.
  4. Polat, Ali & Shahbaz, Muhammad & Ur Rehman, Ijaz & Satti, Saqlain Latif, 2013. "Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test," MPRA Paper 51724, University Library of Munich, Germany, revised 25 Nov 2013.
  5. Viale, Ariel M. & Kolari, James W. & Fraser, Donald R., 2009. "Common risk factors in bank stocks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(3), pages 464-472, March.
  6. Grabowski, Szymon, 2008. "What does a financial system say about future economic growth?," MPRA Paper 11560, University Library of Munich, Germany.
  7. Zeng Liujing & Yong Hue Hwa Au & Treepongkaruna Sirimon & Faff Robert, 2014. "Is there a Banking Risk Premium in the US Stock Market?," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, Società editrice il Mulino, issue 1, pages 27-42, July.
  8. Campbell, Cynthia J. & Cowan, Arnold R. & Salotti, Valentina, 2010. "Multi-country event-study methods," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(12), pages 3078-3090, December.
  9. Pais, Amelia & Stork, Philip A., 2011. "Contagion risk in the Australian banking and property sectors," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(3), pages 681-697, March.
  10. Ricardo M. Sousa, 2010. "Collateralizable Wealth, Asset Returns, and Systemic Risk: International Evidence," NIPE Working Papers, NIPE - Universidade do Minho 15/2010, NIPE - Universidade do Minho.
  11. Cole, Rebel & Moshirian, Fari & Wu, Qionbing, 2007. "Bank stock returns and economic growth," MPRA Paper 29188, University Library of Munich, Germany.
  12. Cole, Rebel A. & Wu, Qiongbing, 2009. "Is hazard or probit more accurate in predicting financial distress? Evidence from U.S. bank failures," MPRA Paper 24688, University Library of Munich, Germany, revised 01 Aug 2010.
  13. Perera, Anil & Ralston, Deborah & Wickramanayake, J., 2014. "Impact of off-balance sheet banking on the bank lending channel of monetary transmission: Evidence from South Asia," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 29(C), pages 195-216.
  14. Uwe Hassler & Antonio Rubia & Paulo M.M. Rodrigues, 2014. "Persistence in the Banking Industry: Fractional integration and breaks in memory," Working Papers, Banco de Portugal, Economics and Research Department w201406, Banco de Portugal, Economics and Research Department.
  15. Ramírez, Carlos D., 2009. "Bank fragility, "money under the mattress", and long-run growth: US evidence from the "perfect" Panic of 1893," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(12), pages 2185-2198, December.
  16. Chernykh, Lucy & Cole, Rebel A., 2011. "Does deposit insurance improve financial intermediation? Evidence from the Russian experiment," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(2), pages 388-402, February.

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