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The Determinants of Bank Stock Returns' Co-Movements in East Asia

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  • Carlos Bautista

    ()
    (College of Business Administration - University of the Philippines)

  • Philippe Rous

    ()
    (LAPE - Laboratoire d'Analyse et de Prospective Economique - Université de Limoges : EA1088 - Institut Sciences de l'Homme et de la Société)

  • Amine Tarazi

    ()
    (LAPE - Laboratoire d'Analyse et de Prospective Economique - Université de Limoges : EA1088 - Institut Sciences de l'Homme et de la Société)

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. The return correlations among banks within each country are computed and used as a dependent variable in weighted least squares regressions. The factors were chosen from a wide range of accounting and market-based indicators using a stepwise procedure. The results show that the share of interbank activities in the balance sheet does not explain the level of correlations. However, 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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Paper provided by HAL in its series Working Papers with number hal-00916496.

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Date of creation: 2008
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Handle: RePEc:hal:wpaper:hal-00916496

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  1. Gropp, Reint & Moerman, Gerard, 2004. "Measurement of contagion in banks' equity prices," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 405-459, April.
  2. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  3. Carlos Bautista & Philippe Rous & Amine Tarazi, 2007. "The Determinants of Domestic and Cross Border Bank Contagion Risk in South East Asia," Working Papers hal-00918555, HAL.
  4. Saxonhouse, Gary R, 1976. "Estimated Parameters as Dependent Variables," American Economic Review, American Economic Association, vol. 66(1), pages 178-83, March.
  5. Taimur Baig & Ilan Goldfajn, 1998. "Financial Market Contagion in the Asian Crisis," IMF Working Papers 98/155, International Monetary Fund.
  6. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  7. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2000. "Inside the crisis : an empirical analysis of banking systems in distress," Policy Research Working Paper Series 2431, The World Bank.
  8. 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.
  9. Gianni De Nicoló & Myron L. Kwast, 2002. "Systemic Risk and Financial Consolidation," IMF Working Papers 02/55, International Monetary Fund.
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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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