Bank Stock Returns Research Articles

The effect of environmental disclosure on stock return of Islamic and conventional banks

Purpose – We examine the effects of environmental, social, and governance (ESG) disclosure and green building policies on the stock returns of Islamic and conventional banks. Methodology – Data were obtained from 17 Islamic banks and 17 conventional banks from eight countries (Arab Saudi Arabia, UAE, Qatar, Kuwait, Malaysia, Indonesia, Pakistan, and Bahrain) over seven years from 2017 to 2023. We conducted panel least squares with fixed effects (dummy variables) for cross-sections using EViews to process the data.Findings – The estimated results show that the green building policy variable is statistically significant to the stock return of Islamic banks, while the environmental, social, and governance variables are not. Meanwhile, the social dimension is statistically significant for the stock returns of conventional banks, but environmental, governance, and green buildings are not. Implications – Investors and policymakers should consider the implementation of ESG and green building policies to contribute on sustainability issues and gain financial return.Originality – This study tests non-financial performance, such as ESG disclosure and green building policy, on the stock returns of Islamic and conventional banks, which has not been extensively studied by the existing literature.

Precision Least Squares: Estimation and Inference in High-Dimensions

The least squares estimator can be cast as depending only on the precision matrix of the data, similar to the weights of a global minimum variance portfolio. We give conditions under which any plug-in precision matrix estimator produces an unbiased and consistent least squares estimator for stationary time series regressions, in both low- and high-dimensional settings. Such conditions define a class of “Precision Least Squares” (PrLS) estimators, which are shown to be approximately Gaussian, efficient, and to provide automatic family-wise error control in large samples. For estimating high-dimensional sparse regression models, we propose a LASSO Cholesky estimator of the plug-in precision matrix. We show its consistency and how to properly bias correct it, thereby obtaining a LASSO Cholesky-based PrLS (LC-PrLS) estimator. LC-PrLS performs well in finite samples and better than state-of-the-art high-dimensional estimators. We employ LC-PrLS to investigate the dynamic network of predictive connections among a large set of global bank stock returns. We find that crisis years correspond to a collapse of predictive linkages.

Risk and Return Analysis of Stocks of Nepalese Commercial Banks

This research article analyzes the impact of risk and return of Nepalese commercial bank stocks on portfolio returns to assist investors in making informed investment decisions. It aims to examine the effects of individual bank stock returns, risks, market return, and market risk (beta) on overall portfolio performance. The study utilizes a quantitative approach, employing descriptive statistics, comparative (trend) analysis, correlation analysis, and hypothesis testing. Secondary data was collected from 18 commercial banks in Nepal, including post-merger banks, covering the fiscal years from 2015/16 to 2021/22. Statistical tools such as SPSS and EViews were used for analysis. The findings indicate that investors seeking higher returns might consider Prabhu Bank, which offers high mean returns but also comes with higher volatility. In contrast, risk-averse investors may prefer banks like NMB and Nabil, which provide lower mean returns but more stable performance. Notably, this research contributes to the understanding of the risk-return relationship in the context of 18 Nepalese commercial banks post-merger, providing new insights for investors. This study highlights the importance of analyzing individual bank stocks and their associated risks for portfolio construction. By understanding the dynamics of risk and return, investors can optimize their investment strategies and enhance portfolio performance. Overall, this research fills a gap in existing literature by focusing on the Nepalese commercial banking sector and its implications for investor decision-making. The insights gained from this study can guide investors in navigating the complexities of the stock market, ultimately leading to more informed and strategic investment choices. Future research could expand on this work by exploring additional factors influencing stock performance and investor behavior in the Nepalese context.

On bank stock return spillovers in South Africa: Implications for portfolio hedging

The purpose of this study is to investigate the return spillovers among the five systemically important banks in South Africa. The study employs a time-varying parameter vector autoregression (TVP-VAR) framework utilising daily data between 2000 and 2024. A minimum return connectedness portfolio is constructed from the spillover indexes and compared with traditional portfolio optimisation methods in terms of risk reduction and reward-to-risk ratios. The research findings reveal that Capitec, the smallest bank in terms of assets, has weaker return connectedness with other banks while ABSA, FirstRand, Nedbank and Standard Bank are moderately connected. Moreover, the two largest banks in terms of assets, Standard and FirstRand, are more connected than any other pairwise connection in the network. During significant events such as national elections, the global financial crisis and the COVID-19 pandemic, system-wide connectedness increases.

Impact of Financial Risk and Macro-Economic Variable on Stock Return: Evidence from Commercial Banks of Nepal

This paper examines the impact of financial risks and macroeconomic variables on the stock returns of commercial banks in Nepal. The study focuses on four main types of financial risks: credit risk, market risk, capital risk, and liquidity risk, alongside bank size, return on assets (ROA), and dummy variables for COVID-19 and earthquake impacts. Additional macroeconomic variables include economic growth, inflation, and interest rates. Using panel data regression on yearly data over 11 years for 20 commercial banks, the study investigates these factors' causal impacts on stock returns. The findings indicated that capital risk and liquidity risk negatively affect stock returns, suggesting that higher capital adequacy ratios limit high-risk, high-return investments, and higher liquidity risks lead to financial instability. Credit risk and market risk, however, did not impact stock returns. Larger banks faced negative stock returns, likely due to management complexities and inefficiencies. Economic growth and inflation positively impacted stock returns, reflecting economic optimism and increased activities, while higher interest rates negatively affected returns by increasing borrowing costs. The COVID-19 pandemic had a positive impact due to increased stock market activity amid limited investment opportunities, whereas the 2015 earthquake negatively affected returns as efforts focused on rebuilding. These insights underscore the need for robust risk management and consideration of broader economic conditions in investment and policy decisions.

Credit market conditions, expected return proxies, and bank stock returns

We evaluate the performance of expected return proxies during extreme credit market conditions and extreme phases of business cycles when realized returns on banks stocks are large in absolute value. We construct three sets of expected return proxies for individual bank stocks: (i) characteristic-based proxies; (ii) standard risk-factor-based proxies; and (iii) risk-factor-based proxies in which betas depend on firm characteristics. Based on the newly developed minimum error variance (MEV) criterion (Lee et al., 2020), the best performing expected return proxy is the risk-factor-based model that allows betas to vary with firm characteristics. We also examine whether these three expected return proxies can capture actual returns during either extreme credit market or extreme business-cycle conditions. We find that both risk-factor-based proxies explain returns better than characteristic-based proxies during these periods.

MARKET REACTION TO THE IMPLEMENTATION OF BASEL CAPITAL IN SOUTH AFRICAN BANKS: EVENT STUDY APPROACH

This study investigated the stock market reaction and the effect of the implementation of Basel II and Basel III on the stock returns of South African banks. In achieving this aim, this study focused on daily and annual data of six commercial banks from 3rd January 2004 to 31st December 2022. The event study methodology was employed to identify abnormal returns around the specified event dates. The effect of the changes in Basel capital requirements on stock returns was not uniform across the four events. The market reacted favourably to the implementation of the Basel II requirements in the country. There was a significantly negative market reaction to the subsequent full implementation of Basel III official. Finally, higher Basel capital requirements (CAR) was associated with lower bank stock returns. The findings implied that bank regulators increase capital to strengthen the banking system but constrain the maximisation of shareholders’ values.

Revisiting the interest rate, foreign exchange rate, and bank stock return nexus in Saudi Arabia: evidence from the wavelet approach

Revisiting the interest rate, foreign exchange rate, and bank stock return nexus in Saudi Arabia: evidence from the wavelet approach

Macro-financial nexus: a systematic review on the impact of macroeconomic factors on bank stock returns

Macro-financial nexus: a systematic review on the impact of macroeconomic factors on bank stock returns

Relationship between fintech by Google search and bank stock return: a case study of Vietnam

Due to the ongoing global debate regarding the relationship between fintech and banks, including developing countries, this study aims to investigate this relationship in the case of Vietnam, an emerging nation. The study analyzes the relationship between fintech search and bank stock returns, which are measures of fintech and banks, respectively. The time series data for fintech and bank stock returns were obtained from Google Trends and Vietstock, respectively. Exploratory factor analysis was utilized to derive the fintech variables, while the bank stock return variable was calculated using a basket of eight listed banks from 2017w46 to 2021w46. The results were estimated using the vector autoregression and Granger causality method and validated with the copula method. A key finding of this study is the presence of a simultaneous negative change and bidirectional causality between bank stock returns and fintech lending. Furthermore, several other interesting findings were discovered: (1) the causal relationship from fintech to bank stock returns is weaker compared with the opposite direction; (2) unidirectional causality exists between different types of fintech, such as influence from FinFintech to FinLending, from FinPayment to FinLending and FinWallet, from FinMoney to FinFintech, from FinWallet to FinLending, and from FinProduct to FinFintech; and (3) there is an equal occurrence of simultaneous increase or decrease between bank stock returns and certain types of fintech, specifically between BankReturn and FinPayment, BankReturn and FinLending, as well as BankReturn and FinWallet. These findings shed light on the complex relationship between fintech and banks, offering insights that contribute to our understanding of this dynamic interplay in the context of Vietnam’s emerging fintech landscape.

The Moderating Role BOPO of CAR, NPL, NIM and LDR on Banking Stock Returns on the Indonesian Stock Exchange

This research aims to determine and prove the partial and simultaneous influence of Capital Adequency Ratio (CAR), Non Performing Loans (NPL), Net Interest Margin (NIM), Loan to Deposit Ratio (LDR), Operating Costs Operating Income (BOPO) on Stock returns. The second objective is to prove whether BOPO moderates the relationship between Capital Adequency Ratio (CAR), Non Performing Loan (NPL), Net Interest Margin (NIM), Loan to Deposit Ratio (LDR) and Operating Costs and Operating Income (BOPO) on stock returns. This research uses an associative quantitative approach model, namely research to test the influence of the independent variable on the dependent variable. The population used in this research was 43 banks that were included and registered on the IDX for the 2018-2022 period. The sampling technique used uses the Purposive Sampling technique, namely that samples are taken based on certain criteria so that 20 banks are obtained with an observation period of 5 years so that 100 observation data are obtained. The data analysis technique uses Moderating regression where data analysis will use residual testing. Hypothesis testing uses the t test, F test and residual test. The results of this research prove that CAR, NIM, LDR partially have no effect on stock returns. The NPL and BOPO variables partially influence stock returns. Based on the simultaneous test, it can be concluded that the variables CAR, NPL, NIM, LDR and BOPO simultaneously have a significant effect on stock returns. The residual test results show that BOPO does not moderate the relationship between CAR, LDR, NIM and NPL on the Return variable.

The puzzle of convex/concave ESG returns and large banks in MENA region countries

This study examines the linear and nonlinear impacts of the environmental, social, and governance (ESG) components on bank stock returns in the region of the Middle East and North Africa (MENA). It also investigates the impact of bank size on the nexus between ESG and bank stock returns. Using a sample of 59 banks from the 12 countries in the MENA region between 2010 and 2021 and applying generalized quantile regression, we find the following. Our results suggest that ESG components and bank stock returns have a nonlinear relationship. In other words, the link between the ESG components and stock market returns could be U-shaped, inverted U-shaped, or both. Additionally, we find that size influences the link between the ESG pillars and bank stock returns. With few exceptions, large banks strengthened the positive link between ESG components and stock returns. Our findings align with the concept of “too little of a good thing” or “too much of a good thing” effects, along with the law of diminishing marginal returns.

The Impacts of the Interest Rate, the Exchange Rate, and the Market Index on the Stock Returns of the Brazilian Banks

Abstract This paper aims to analyze the impact of interest rate, exchange rate, and market on the returns and volatility of the stocks of banks listed on the Brazilian Stock Exchange. This analysis used two statistical models: the linear model estimated using Ordinary Least Squares and the ARCH/GARCH time series volatility models. The econometric studies considered the daily data of 15 financial institutions listed on the stock exchange during the period from January 2009 to December 2021. Regarding the market effect, the Ibovespa index for the period was considered; for the interest rate, the CDI (Certificate of Interbank Deposit) was used; and, about the exchange rate, the dollar rate was adopted as a reference. The results indicate that the distribution of stock returns is asymmetrical, with an elongated tail on the right. It was observed, based on the econometric model applied, that the daily returns of the shares are significantly influenced by the market, and the interest rate exerts the least impact on the returns. These findings are relevant to the scientific community exploring the topic and provide valuable insights for bankers, analysts, market investors, regulatory authorities, and society in the decision-making process. JEL classification numbers: C32, G00, G21. Keywords: Banking, Interest rates, Exchange rate, Bank stocks.

PENGARUH MAKRO EKONOMI TERHADAP RETURN SAHAM PERBANKAN

This study aims to see the effect of economic variables and world oil prices on banking stock returns. The method used in this study is a panel data regression analysis technique using quarterly data and the period from 2020 to 2022. The results of the research show that inflation and interest rates have a significant positive effect on banking stock returns, an increase in inflation causes people to reduce consumption and prefer to invest their money in the capital market, an increase in interest rates can result in an increase in income which has an impact on banking profits and performance, this is interesting investors' interest in investing in banking shares. Meanwhile, the exchange rate has a significant negative effect on banking stock returns, an increase or depreciation of the Rupiah exchange rate causes an increase in production costs and company expenses which can reduce company performance. so that investors become less interested in investing in the stock market. Meanwhile, world oil prices have no effect on banking stock returns

Examining the Effect of Bank Health Level towards Stock Return of Commercial Banks in Three-Selected ASEAN Countries

Today, various main factors, including the banking sector, support a country's economy. The growth and performance of banks in a country are factors in measuring the country's economic growth. The increasing number of banking stocks traded in ASEAN countries proves banking development. However, since middle-to-low-income countries dominate ASEAN, it opens up a greater risk to the volatility of bank stock returns because of economic turmoil. Non-performing loans (NPL), Good Corporate Governance (GCG), Return on Assets (ROA), and Capital Adequacy Ratio (CAR) are found to influence bank stock return in some studies, but other similar studies show the opposite. Therefore, this study uses 28 banks in ASEAN countries as a sample, consisting of 10 Indonesian banks, 8 Malaysian banks, and 10 Thailand banks. Data analysis uses regression analysis with moderated regression analysis (MRA) and discrimination tests. The result shows NPL and GCG have no significant effect on bank stock return, ROA has a positive and significant effect, and CAR has a negative and significant effect. Price to Book Value (PBV) has a positive and significant effect on bank stock return but can only moderate ROA on stock return. The discrimination test shows that ASEAN countries' NPL, GCG, ROA, and CAR differ significantly. Therefore, banks in ASEAN ought to maintain their health through these factors to maximize their stock return.

The Impact of Systematic Risk on Stock Return of Jordanian Commercial Banks Listed on the Amman Stock Exchange during the Period (2000-2020)

This study aimed to measure the impact of systemic risks (beta coefficient and inflation) on the stock returns of Jordanian commercial banks during the period (2000-2020). The study sample consisted of all Jordanian commercial banks listed on the Amman Stock Exchange. The study used several statistical methods to reveal the association of the independent variables with the dependent variable, where the descriptive analytical approach was adopted to analyze the data in addition to the multiple regression analysis. The results of the study showed that regarding the systemic risks, there is a negative impact of the beta coefficient on stock returns, while it was found that there is a positive effect of inflation on the stock returns of Jordanian commercial banks. The study recommended the development of better policies to face risks, which in turn reduces the profits of commercial banks.

Bank-specific factors, market conditions and the riskiness of Islamic and conventional banks: evidence from recent quantile approaches

PurposeThe purpose of this paper is to investigate how bank-specific factors affect the riskiness of conventional and Islamic banks in response to shocks in major financial indices as market conditions change.Design/methodology/approachThe authors use a multivariate quantile model using daily equity returns data to analyze financial risk spillovers in the values at risk that may occur between major financial indices and the equity prices of conventional and Islamic banks worldwide. Then, using both quantile and quantile-on-quantile models, the authors examine the effects of bank-specific variables such as leverage ratio, bank size, return on equity and capital adequacy ratio on the initial impact of shocks in major global financial indices on bank equity price returns at different quantiles of shocks and bank-specific variables.FindingsThe findings reveal that major financial indices can predict bank stock returns. Moreover, the authors find that the effect of bank-specific factors on the riskiness of banks is heterogeneous in that it depends on the bank type (Islamic vs conventional), the level of banking variable (high vs low) and, more importantly, market conditions.Originality/valueTo the best of the authors’ knowledge, this is the first study that compares the dual banking system with stock market performance while considering bank-specific variables as market conditions change. The results of this study reveal that the effect of bank-specific variables on bank performance varies according to different quantiles of shocks and bank-specific variables. Islamic banks may echo or differ from conventional banks depending on the specific factor under investigation.

Pengaruh Variabel Makroekonomi terhadap Return Saham Indeks Infobank15

Purpose: This study analyzes the impact of macroeconomic indicators on banking stock returns. Methodology/approach: This study utilized a quantitative approach with a hypothesis testing method as evidence of the effects of macroeconomic indicators on bank stock returns. The stock index obtained as a sample was the Infobank15 index, consisting of 15 banks in Indonesia over five years, from 2018 to 2022. To examine the relationship in the research model or the impact between variables and to fit the research model, secondary data were used. Data were analyzed using statistical software to implement the data analysis. Results: This study found that the price of the InfoBank15 index is affected either positively or negatively by money supply and exchange rate, respectively, but not by interest rate. Limitations: This research was limited by the short observation period, with limited macroeconomic indicators as the independent variable, and only one index listed in Bursa Efek Indonesia is used as research data.

Has the heterogeneity of culture, investor sentiment and uncertainty altered bank stock returns in the MENA region?

PurposeThis paper has analysed the impact of cultural dimensions, investor sentiment and uncertainty on bank stock returns. Also, the study examined the influences of the interaction between cultural dimensions and individual (private) sentiment (investor sentiment).Design/methodology/approachTo meet the study's objectives, a two-step generalised method of moments estimator was applied to the study sample, which included 105 banks in the nine Middle East and North African region countries between 2010 and 2020.FindingsThe cultural dimensions of individualism and masculinity were found to have a positive and significant effect on banks' buy and hold stock return (BUH). At the same time, power distance and uncertainty avoidance were discovered to have negative effects. Besides, the findings revealed that the interactions of power distance, individual sentiment and uncertainty avoidance had positive and significant relationships with banks' BUH. However, individualism, individual sentiment and masculinity had inverse relationships with banks' BUH. Furthermore, the findings revealed that investor sentiment positively influenced banks' BUH. Finally, uncertainty influenced banks' BUH stock returns positively.Research limitations/implicationsImportant implications for participants in the financial sector and governments may be learnt from this study's conclusions. Due to cultural biases, this study's findings suggested that investors overreact in the stock market.Originality/valueAdditionally, this research comprises one of the few studies that have overviewed the link between classical and behavioural finance in MENA countries with distinctive cultural characteristics.

Impacts of COVID-19 Pandemic on the Price Volatility of Listed Commercial Bank Stocks in Vietnam

This article aims to estimate the relationship between COVID-19 and the price volatility of listed commercial bank stocks in Vietnam during the two most severely affected years of the pandemic (2020–2021), and measuring the impacts of macroeconomic factors on those stocks’ returns and their price volatility (measured by standard deviation of returns) with previous studies’ results before the pandemic. Using the data from 16 listed commercial banks’ stock returns on Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) during the study period, we used OLS to find the effect, with important findings: (1) COVID-19 daily reported cases had a weak negative effect on Vietnam listed banks’ stock returns and hardly any relation with stock returns’ standard deviation. (2) GDP influenced commercial bank stock returns positively, while CPI, number of COVID-19 cases, and businesses closed had a negative effect. Also, listed commercial bank stock returns were insignificantly impacted by the interest rate. (3) Macroeconomic factors’ impact on the standard deviation of returns were weak, during the pandemic. GDPs and CPIs effect turned out to be insignificant while interest rate had a negative effect on the volatility rate, and was only significant in two out of the three models, implying potential negative impacts of COVID-19 on the macroeconomy. JELClassification: G21, F62, F65, G18, G28