Are Market Views on Banking Industry Useful for Forecasting Economic Growth?

33 Pages Posted: 18 Nov 2018

See all articles by Van Son Lai

Van Son Lai

Université Laval

Xiaoxia Ye

University of Liverpool Management School

Lu Zhao

Stockholm University - Stockholm Business School

Date Written: October 26, 2018

Abstract

Using two market-view variables, namely the regulatory forbearance fraction imbedded in the bank capital and the market-valued of the bank equity-to-assets ratio, derived from market equity and total liabilities from listed commercial banks in the U.S. and three countries (Japan, China, India) and a region (Southeast Asia) in Asia, we show compelling evidence that market views on banking industry have significant predictive power on economic growth after controlling for stock, bond, and inflation variables. The current paper further contributes to the literature on interaction between the financial intermediation and the economic growth by showing evidence of market perceptions of the banking industry impacting the real economic activities.

Keywords: Bank regulation, Regulatory forbearance, Forecasting, Economic growth

JEL Classification: G17, G21, G28

Suggested Citation

Lai, Van Son and Ye, Xiaoxia and Zhao, Lu, Are Market Views on Banking Industry Useful for Forecasting Economic Growth? (October 26, 2018). Pacific-Basin Finance Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3273429

Van Son Lai

Université Laval ( email )

FSA ULaval
Quebec G1V 0A6
Canada
418-656-2131, x3943 (Phone)

Xiaoxia Ye

University of Liverpool Management School ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

Lu Zhao (Contact Author)

Stockholm University - Stockholm Business School ( email )

Sweden

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