EconPapers    
Economics at your fingertips  
 

The relation between bank credit growth and the expected returns of bank stocks

Priyank Gandhi

European Financial Management, 2018, vol. 24, issue 4, 610-649

Abstract: Higher bank credit growth implies that excess returns of bank stocks over the next one year are lower by nearly 3%. Credit growth tracks bank stock returns over the business cycle and explains nearly 14% of the variation in bank stock returns over a 1‐year horizon. I argue that the predictive variation in returns reflects investors' rational response to a small time‐varying probability of a tail event that impacts banks and bank‐dependent firms. Consistent with this hypothesis, the predictive power, as measured by the absolute magnitude of the coefficient on credit growth and the adjusted‐R2 at the 1‐year horizon, depend systematically on variables that regulate exposure to tail risk.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/eufm.12179

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:eufman:v:24:y:2018:i:4:p:610-649

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1354-7798

Access Statistics for this article

European Financial Management is currently edited by John Doukas

More articles in European Financial Management from European Financial Management Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2019-02-23
Handle: RePEc:bla:eufman:v:24:y:2018:i:4:p:610-649