The Determinants of Bank Stock Returns' Co-Movements in East Asia

8 Pages Posted: 22 Aug 2008

See all articles by Carlos C Bautista

Carlos C Bautista

University of the Philippines, Diliman

Philippe Rous

Université de Limoges, LAPE

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: July 10, 2008

Abstract

We examine co-movements of bank stock returns in eight East Asian countries after the 1997 crisis and attempt to determine the factors that influence them. The return correlations among banks within each country are computed and used as a dependent variable in weighted least squares regressions. The factors were chosen from a wide range of accounting and market-based indicators using a stepwise procedure. The results show that the share of interbank activities in the balance sheet does not explain the level of correlations. However, a strong link is found between the bank return co-movements and bank default risk measured by a z-score. To a lesser extent, the share of loan activities in a bank's balance sheet, which is a proxy of opacity, is also a significant factor of the level of correlation.

Keywords: Bank contagion, East Asia, Correlation of bank stock returns

JEL Classification: G21, G29

Suggested Citation

Bautista, Carlos C and Rous, Philippe and Tarazi, Amine, The Determinants of Bank Stock Returns' Co-Movements in East Asia (July 10, 2008). Available at SSRN: https://ssrn.com/abstract=1244302 or http://dx.doi.org/10.2139/ssrn.1244302

Carlos C Bautista

University of the Philippines, Diliman ( email )

Virata School of Business
UP Diliman Campus
Quezon City, 1101
Philippines

Philippe Rous

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Amine Tarazi (Contact Author)

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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