Sources of Systematic Risks in Indian Banking Stock Returns - Some Empirical Evidences

Business Analyst, Vol. 36 No. 2, October 2015 - March 2016

16 Pages Posted: 1 Apr 2016

See all articles by Vanita Tripathi

Vanita Tripathi

University of Delhi India - Delhi School of Economics - Department of Commerce

Arnav Kumar

University of Delhi - Delhi School of Economics - Department of Commerce

Date Written: March 31, 2016

Abstract

This paper examines the relationship between various macroeconomic variables and banking stock returns in order to find out significant sources of systematic risks in banking stock returns in India. Monthly data for the period 2002-2014 (further divided into a pre crisis and a post crisis period) has been analysed using unit root test, correlation, regression, Granger causality (both short and long run) and cointegration tests. Results reveal that exchange rate, market factor and long term interest rate are significant in explaining banking stock returns in India in total and post crisis periods (with R Square being 82% and 87% respectively). Short run causality results reveal unidirectional causality from long run interest rate to banking stock returns and from banking stock returns to market returns. On the other hand, long run causality results reveal that inflation and money supply Granger cause bankex while bankex Granger causes IIP and short term interest rate. Hence, there seem to be a lead lag relationship between banking stock returns and various macroeconomic sources of risks. We found long run cointegration of banking stock returns with money supply and short run interest rate. These results provide support to the argument that besides market risk, interest rate risk and currency risk are also priced in banking stock returns. These findings are pertinent for policy makers, regulators and investors at large.

Keywords: Systematic Risks, Banking Stock Returns, Short and Long Run Causality, Cointegration

JEL Classification: B26, C22, C58, E44

Suggested Citation

Tripathi, Vanita and Kumar, Arnav, Sources of Systematic Risks in Indian Banking Stock Returns - Some Empirical Evidences (March 31, 2016). Business Analyst, Vol. 36 No. 2, October 2015 - March 2016 . Available at SSRN: https://ssrn.com/abstract=2757556

Vanita Tripathi

University of Delhi India - Delhi School of Economics - Department of Commerce ( email )

Department of Commerce
Delhi University
Delhi, 110007
India

HOME PAGE: http://people@du.ac.in~vtripathi/

Arnav Kumar (Contact Author)

University of Delhi - Delhi School of Economics - Department of Commerce ( email )

New Delhi, New Delhi 110007
India

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