Bank Stock Returns under Money Supply Endogeneity: Empirical Evidence Using Panel Data
54 Pages Posted: 27 Oct 2009
Date Written: September 21, 2009
Abstract
There is as yet a study of money supply effect on the aggregate bank stock prices using modern money supply theories.Endogenous money theory suggests loans made by banks cause deposits, and, consequently, bank creates money supply. Resulting changes in bank’s loans and deposits affects bank stock returns: Also, consequent credit creations/reductions affect a bank’s profitability, thus stock prices. Whether money endogeneity is in fact the way the money supply behaves has also not yet been widely tested. Applying panel regression and generalized method of moments, this paper provides new evidence on this little explored relationship between endogenous money supply theory and bank stock returns by testing across several major economies (G-7 countries). We do this by controlling for the actual monetary policy regimes in the economies. The results, while confirming the money endogeneity as a proposition, also shows significant money supply effect on the aggregate prices of banking shares.
Keywords: Bank share prices, Money endogeneity, Money supply effect, Bank credit, Monetary regime effect, G-7 countries, Panel data regression
JEL Classification: E12, E51, G21
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By James Crotty
-
By Gerald Epstein and Dorothy Power
-
Trends in the Rentier Income Share in OECD Countries, 1960-2000
-
Trends in the Rentier Income Share in OECD Countries, 1960-2000
By Dorothy Power, Gerald Epstein, ...
-
The Japanese Financial Crisis, Corporate Governance, and Sustainable Prosperity
-
Completing the Bathtub?: The Development of Top Incomes in Germany, 1907-2007
By Christina Anselmann and Hagen Krämer