Money supply endogeneity and bank stock returns

Z. E. Badarudin, Mohamed Ariff () and Ahmed Khalid

Applied Financial Economics, 2011, vol. 21, issue 14, 1035-1048

Abstract: This article presents results of tests on two related hypotheses on money supply. The first relates to an unresolved issue of money endogeneity while the second centres on the yet-explored relationship between money supply and bank stock returns if money is found to be endogenous. Our results, using long-horizon data of Group of Seven (G-7) economies, supports causality in money supply as running from bank lending to bank deposits, a result that is predicted by the post-Keynesian money supply endogeneity (bank-credit-driven) theory. Thus, the result is not consistent with exogeneity proposition. A new evidence of positive relationship between endogenous money supply and aggregate bank stock return is statistically significant on this hitherto unexplored topic. These findings are consistent with the post-Keynesian money supply theory and the dividend valuation theory, which predicts money supply changes to induce changes in bank earnings, so bank share prices change.

Keywords: money supply endogeneity; bank stock returns; credit market; liquidity provision; post-Keynesian theory; dividend valuation theory; G-7 countries (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/09603107.2011.562162 (text/html)
Access to full text is restricted to subscribers.

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:taf:apfiec:v:21:y:2011:i:14:p:1035-1048

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2011.562162

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().