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Time-varying conditional beta, return spillovers, and dynamic bank diversification strategies

Lu Wang

The Quarterly Review of Economics and Finance, 2021, vol. 79, issue C, 272-280

Abstract: This paper investigates how time-varying beta and return spillovers relate to bank diversification strategies conditional on market states, from a portfolio management approach. This paper explores the methods of estimating beta in a time-varying fashion for banking data. Further, it discovers the regime-switching relationship between bank betas and returns. Finally, this paper analyzes how the dynamic relationship between betas and returns implies to bank diversification strategies. The main findings are: 1) Bank betas are time-varying and the relationship between betas and returns in banking is regime-dependent; 2) banks use different diversification strategies in response to market movements conditional on market stability; 3) return spillovers among the banking industry affect bank returns through activity diversification.

Keywords: Bank; Beta; Diversification; Spillover (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:79:y:2021:i:c:p:272-280

DOI: 10.1016/j.qref.2020.06.007

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