Returns Volatility in Stock Market and Performance of Banks: Evidence from Pakistan

Pakistan Journal of Applied Economics: Special Issue 2018, (389-410)

22 Pages Posted: 24 Feb 2020

See all articles by Saif ul Rahman

Saif ul Rahman

affiliation not provided to SSRN

Dr. Abdul Rashid

International Institute of Islamic Economics (IIIE), International Islamic University

Muhammad Ilyas

Sukkur IBA University

Date Written: 2018

Abstract

Irregular behavior of stock market affects all sectors of economy however, financial sector is the most vulnerable sector. The study attempts to examine the impact of stock market returns volatility on performance of banking sector in Pakistan. Two main hypotheses are constructed to achieve the objectives of study: i.e., (1) There exists a significant relationship between the returns volatility in stock market and the banking performance, and (2) Bank size has a significant role in establishing the volatility-performance relationship. Two step GMM system estimator is used to test these hypotheses. The results reveal that stock market volatility has a significant negative impact on return, equity, and the assets of banks; and, the bank-size has a significant negative impact on volatility-performance relationship. Specifically, the results suggest that during the time of high volatility, banks’ profitability starts to decline but this profitability decline is not same, for all size of banks. The negative impact of volatility for larger banks is high.

Keywords: Returns Volatility, GARCH, Banking Performance

JEL Classification: G17, G21

Suggested Citation

ul Rahman, Saif and Rashid, Abdul and Ilyas, Muhammad, Returns Volatility in Stock Market and Performance of Banks: Evidence from Pakistan (2018). Pakistan Journal of Applied Economics: Special Issue 2018, (389-410), Available at SSRN: https://ssrn.com/abstract=3526447

Saif Ul Rahman

affiliation not provided to SSRN

Abdul Rashid

International Institute of Islamic Economics (IIIE), International Islamic University ( email )

New Campus, Faculty Block 2
Sector H-10
Islamabad, PA Federal 44000
Pakistan
03332277507 (Phone)

Muhammad Ilyas (Contact Author)

Sukkur IBA University ( email )

http://www.iba-suk.edu.pk/
Sukkur, Sindh 65200
Pakistan

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