Risk factors explaining returns anomaly in emerging market banks – study on Indian banking system

Sabyasachi Mohapatra, Arun Kumar Misra () and Marimuthu Murali Kannan ()
Additional contact information
Arun Kumar Misra: Indian Institute of Technology Kharagpur
Marimuthu Murali Kannan: Vijaya Bank Head Office

Journal of Economics and Finance, 2020, vol. 44, issue 3, No 1, 417-433

Abstract: Abstract The article provides evidence about the risk factors influence the pricing of banking stocks in the context of emerging economies like India. We use 10 years of data comprising of public and private banks for empirical evidence of abnormal returns. We deploy Fama-French 3-Factor and Carhart 4 Factor model, with and without innovations, to explain the presence of abnormal returns. Comprehending the limitation of the firm specific factors (size and value) accounting for the risk-based returns, we develop a parallel model based on conditioning information like the banks’ profitability, asset quality, capacity to leverage, operating margin and loss assets provisioning. We find that on inclusion of the bank-led performance parameters the explanatory power of the alternate model has significantly improved to 52.21 as compared against a value of 44.28 reported in case of Indian Banks using the Carhart 4-Factor Model (1997). We observe that our findings add-up to indicate significant propositions in estimating the bank specific risk factors that influence the prices and in-turn the returns of banking stocks in emerging markets.

Keywords: Asset pricing; Banking stock returns; Conditioning information; Investment strategies (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s12197-019-09490-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:jecfin:v:44:y:2020:i:3:d:10.1007_s12197-019-09490-8

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/12197/PS2

DOI: 10.1007/s12197-019-09490-8

Access Statistics for this article

Journal of Economics and Finance is currently edited by James Payne

More articles in Journal of Economics and Finance from Springer, Academy of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().