Money supply endogeneity and bank stock returns

Z. E. Badarudin, M. Ariff, A. M. Khalid

Research output: Contribution to journalArticleResearchpeer-review

4 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)1035-1048
Number of pages14
JournalApplied Financial Economics
Volume21
Issue number14
DOIs
Publication statusPublished - Jul 2011

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Endogeneity
Money supply
Stock returns
Post Keynesian
Bank credit
Share prices
Exogeneity
Bank deposits
Bank lending
Causality
Dividends
Price changes
Endogenous money

Cite this

Badarudin, Z. E. ; Ariff, M. ; Khalid, A. M. / Money supply endogeneity and bank stock returns. In: Applied Financial Economics. 2011 ; Vol. 21, No. 14. pp. 1035-1048.
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Badarudin, ZE, Ariff, M & Khalid, AM 2011, 'Money supply endogeneity and bank stock returns' Applied Financial Economics, vol. 21, no. 14, pp. 1035-1048. https://doi.org/10.1080/09603107.2011.562162

Money supply endogeneity and bank stock returns. / Badarudin, Z. E.; Ariff, M.; Khalid, A. M.

In: Applied Financial Economics, Vol. 21, No. 14, 07.2011, p. 1035-1048.

Research output: Contribution to journalArticleResearchpeer-review

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