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The Impact of Regulatory Policies on Volatility under Prudential Framework

Author

Listed:
  • Biabani , Jahangir

    (Payam Noor University)

  • Valipour Pasha , Mohammad

    (Banking Department, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran)

Abstract

Utilizing finance conceptual framework, this paper applies a Frontier-Volatility analysis to illuminate regulatory policies effects on volatility under Iranian Banking Prudential Framework over the period 2003 to 2015 using the raw database collected, classified and compiled by the Rahavard Novin Co. version 3, Securities and Stock Exchange Organization. Findings portray that volatility is affected by the regulatory policies. Tighter regulatory controls will lead to higher volatility that makes it tough for the central bank to regulate the system for culminating financial stability as well as difficulty of entry for the investors. Regulatory policies' positive variations will also lead to lower share revenues as well as a decrease in the earning per share (EPS) that will make it volatile and also will heighten the liquidity risk causing volatility as well as lower investment and shared revenues fluctuate the performance. Furthermore, economic growth has been ineffective on volatility in the current period although its effect has been positive and significant in the first lag period. Higher assets circulations cause higher and significant volatility. The debt proportion coefficient is positive and significant as expected that financial institutions gain more through higher leverage leading to higher volatilities in earnings.

Suggested Citation

  • Biabani , Jahangir & Valipour Pasha , Mohammad, 2016. "The Impact of Regulatory Policies on Volatility under Prudential Framework," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 11(1), pages 53-70, January.
    • Handle: RePEc:mbr:jmonec:v:11:y:2016:i:1:p:53-70
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    More about this item

    Keywords

    Regulatory policy; Volatility; Industry competitiveness structure; Frontier analysis;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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