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Are market views on banking industry useful for forecasting economic growth?

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  • Lai, Van Son
  • Ye, Xiaoxia
  • Zhao, Lu

Abstract

Using two market-view variables, namely the regulatory forbearance fraction imbedded in the bank capital and the market-valued of the bank equity-to-assets ratio, derived from market equity and total liabilities from listed commercial banks in the U.S. and three countries (Japan, China, India) and a region (Southeast Asia) in Asia, we show compelling evidence that market views on banking industry have significant predictive power on economic growth after controlling for stock, bond, and inflation variables. The current paper further contributes to the literature on interaction between the financial intermediation and the economic growth by showing evidence of market perceptions of the banking industry impacting the real economic activities.

Suggested Citation

  • Lai, Van Son & Ye, Xiaoxia & Zhao, Lu, 2019. "Are market views on banking industry useful for forecasting economic growth?," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18301719
    DOI: 10.1016/j.pacfin.2018.10.011
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    Cited by:

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    2. Van Son Lai & Xiaoxia Ye, 2020. "How Does the Stock Market View Bank Regulatory Capital Forbearance Policies?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(8), pages 1873-1907, December.

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    More about this item

    Keywords

    Bank regulation; Regulatory forbearance; Forecasting; Economic growth;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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