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Banks, risk, and the business cycle: an analysis based on real-time data

Banks, risk, and the business cycle: an analysis based on real-time data
Banks, risk, and the business cycle: an analysis based on real-time data
An important question for stock market investors and bank supervisors is to which extent the stock returns of banks reflect business-cycle-sensitive risk in the banking industry. In order to answer this question, we used the stochastic discount factor model to derive a multivariate exponential GARCH-in-mean model. We used monthly U.S. data for the period from 1980 to 2006, for both real-time and revised macroeconomic data to estimate the model. Our empirical results show that using real-time rather than revised macroeconomic data can significantly alter estimates of the risk premium that stock market investors require for bearing business-cycle-sensitive risk in the banking industry.
1947-7945
57-72
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Pierdzioch, Christian
60eb79c6-d98e-4ceb-a634-9acaf7ebc451
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Pierdzioch, Christian
60eb79c6-d98e-4ceb-a634-9acaf7ebc451

Kizys, Renatas and Pierdzioch, Christian (2010) Banks, risk, and the business cycle: an analysis based on real-time data. The Banking and Finance Review, 2 (1), 57-72.

Record type: Article

Abstract

An important question for stock market investors and bank supervisors is to which extent the stock returns of banks reflect business-cycle-sensitive risk in the banking industry. In order to answer this question, we used the stochastic discount factor model to derive a multivariate exponential GARCH-in-mean model. We used monthly U.S. data for the period from 1980 to 2006, for both real-time and revised macroeconomic data to estimate the model. Our empirical results show that using real-time rather than revised macroeconomic data can significantly alter estimates of the risk premium that stock market investors require for bearing business-cycle-sensitive risk in the banking industry.

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Published date: 2010

Identifiers

Local EPrints ID: 434456
URI: http://eprints.soton.ac.uk/id/eprint/434456
ISSN: 1947-7945
PURE UUID: 86bb2a9c-c26c-4b72-aaf2-005e064a87cc
ORCID for Renatas Kizys: ORCID iD orcid.org/0000-0001-9104-1809

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Date deposited: 24 Sep 2019 16:30
Last modified: 09 Jan 2022 04:07

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Contributors

Author: Renatas Kizys ORCID iD
Author: Christian Pierdzioch

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