Abstract
This study is the first to address the exposure of banking industry stock returns to both the commercial and residential real estate markets. The empirical findings show that U.S. banking industry stock returns are significantly sensitive to real estate market returns after controlling for stock market, interest rate, and exchange rate effects. Moreover, the commercial and residential real estate markets have very different effects on banking industry stock returns. Furthermore, the effects on banking industry stock returns are state-dependent. The findings have valuable implications for investors, managers and regulatory authorities.
Highlights
Identifying the sources of risk for U.S banking industry stock returns is important for global stock investors as well as for regulatory control purposes
The purpose of this paper is to explore the sensitivities of U.S bank stock returns to commercial and residential real estate price changes by implementing a time-series multi-factor framework
In addition to equity market returns, the literature has proposed that interest rates, foreign exchange rates, and real estate returns reflect the inherent risks involved in banking to render the pricing of bank stocks more efficient (Bessler & Kurmann, 2014)
Summary
Identifying the sources of risk for U.S banking industry stock returns is important for global stock investors as well as for regulatory control purposes. The purpose of this paper is to explore the sensitivities of U.S bank stock returns to commercial and residential real estate price changes by implementing a time-series multi-factor framework. This study investigates the sensitivity of bank stock returns to commercial and residential real estate. To amend this deficit in the research, the present work utilizes direct commercial real estate data to address the sensitivity of bank stock returns to real estate. In addition to equity market returns, the literature has proposed that interest rates, foreign exchange rates, and real estate returns reflect the inherent risks involved in banking to render the pricing of bank stocks more efficient (Bessler & Kurmann, 2014).
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