Factors Influencing Banking

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FACTORS AFFECTING BANKING STOCKS Bank stocks have out-performed the Sensex and Nifty in recent fiscal year. This out-performance can be attributed to favorable macroeconomic conditions and banking sector specific development like quarterly results and passing of the SBI Amendment Bill that paved the way for its subsidiaries to list in stock markets. Bank credits have grown at an average of 30 percent in the past three years led by housing and retail sectors. In recent years, finance and economics literature has shown increasing interest in the determinants of business firms’ stock price synchronicity. However, precisely what factors influence stock…show more content…
One of the classical ways for the government and central banks to respond to crises is to bail out the whole banking system. This will also increase fundamentals co-movement. Credit provided by banks If banks are dominant finance suppliers in a country, they will have a strong influence on the entire economy, and their exposure to large client firms may create stronger co movements. Thus bank stocks in a country where banks provide a higher degree of credit toward the country’s economic development efforts may exhibit higher variability with the whole market. Banking freedom (Regulations) Banking freedom means relative openness of the banking systems of a country. For example, the banking systems have more freedom if there are fewer restrictions and banks are able to operate freely. If these banking restrictions keep banks from entering lines of business that are too risky for them to operate, a banking system with greater restrictions may be more stable and transparent. Deposit…show more content…
To capture these effects, we construct a banking industry Herfindahl index for each country using banks’ total assets. High values of the banking industry Herfindahl indexes indicate respectively the dominance of a few large banks. (6) Bank size (Size): Stocks of large banks are more likely to be aligned with the whole market because they usually have more influence on the whole market and less opacity. We construct the variable Size as measured by the logarithm of total assets to control for this effect. (7) Number of analyst following (Analyst): Stocks which are covered by more analysts are more aligned with the whole market. To control for this effect; we define the variable Analyst as the number of analysts who issued earnings forecasts for a bank during a given calendar year, which is obtained from the IBES database. (8) Annual trading volume turnover (VOL): Actively traded stocks have higher stock price synchronicity because they can quickly incorporate market information. it define the variable VOL as the total number of shares traded in a year, scaled by the total number of shares outstanding at the end of fiscal year, which is from
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