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The dynamic of bank stock price and its fundamentals: Evidence from Indonesia

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  • Hendrik Widjaja
  • Moch. Doddy Ariefianto

Abstract

This study examines the relationship between bank stock price and its selected fundamentals, namely, profitability, credit risk, and liquidity risk. Using the dynamic common correlated effect (DCCE) technique, we discover a mechanism error-correction between the stock price and the selected fundamentals. We estimate that the equilibrating process of stock price takes between 2.62 and 3.22 months. This study also provides significant support for hypotheses of the positive role of profitability (proxied by ROE and NIM) to bank stock price. Credit and liquidity risk measures do not significantly affect stock price.

Suggested Citation

  • Hendrik Widjaja & Moch. Doddy Ariefianto, 2022. "The dynamic of bank stock price and its fundamentals: Evidence from Indonesia," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2107766-210, December.
    • Handle: RePEc:taf:oaefxx:v:10:y:2022:i:1:p:2107766
    DOI: 10.1080/23322039.2022.2107766
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