Bank stock returns under money supply endogeneity: Empirical evidence using panel data

Zatul E. Badarudin, Mohamed Ariff, Ahmed Khalid

Research output: Chapter in Book/Report/Conference proceedingConference contributionResearchpeer-review


There is as yet a study of money supply effect on the aggregate bank stock prices using modern money supply theories.Endogenous money theory suggests loans made by banks cause deposits, and, consequently, bank creates money supply. Resulting changes in bank’s loans and deposits affects bank stock returns: Also, consequent credit creations/reductions affect a bank’s profitability, thus stock prices. Whether money endogeneity is in fact the way the money supply behaves has also not yet been widely tested. Applying panel regression and generalized method of moments, this paper provides new evidence on this little explored relationship between endogenous money supply theory and bank stock returns by testing across several major economies (G-7 countries). We do this by controlling for the actual monetary policy regimes in the economies. The results, while confirming the money endogeneity as a proposition, also shows significant money supply effect on the aggregate prices of banking shares.
Original languageEnglish
Title of host publicationProceedings of The 22nd Australasian Finance and Banking Conference 2009
Place of PublicationRochester, New York
PublisherSocial Science Research Network (SSRN)
Number of pages54
Publication statusPublished - 2009
EventAustralasian Finance and Banking Conference - Sydney, Australia
Duration: 16 Dec 200918 Dec 2009
Conference number: 22nd


ConferenceAustralasian Finance and Banking Conference
Abbreviated titleAFBC
Internet address


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