نوسانات صنعت بانکداری و رشد اقتصادی

Utilizing the recent dynamic panel GMM estimation techniques for 36 markets, this research investigates the relationship between banking industry volatility and future economic growth, and provides empirical evidence complementary to Cole et al. (2008) who examine the finance-growth nexus from a unique asset pricing theory perspective and document a positive relationship between bank stock returns and future economic growth that is significantly influenced by a series of country-specific and banking institutional characteristics. We find that the negative link between banking industry volatility and future economic growth is significantly affected by government ownership of banks, the enforcement of the insider trading law, systemic banking crises, and bank accounting disclosure standards, while the impact of financial development is ambiguous. The significant results are primarily driven by the data from emerging markets.

Previous empirical studies have strongly supported the theoretical proposition that the banking system is an essential determinant of a country's economic development.1 A well-functioning banking system significantly promotes a country's economic growth; while a banking crisis, resulting from malfunction of the banking system, exerts an independent negative real effect (Dell’Aricca et al., 2008 and Campello et al., 2010), and causes serious disruptions of a country's economic activities (Hoggarth et al., 2002, Boyd et al., 2005, Hutchison and Noy, 2005 and Serwa, 2010). The recent banking crises trigged by the subprime mortgage crisis in the U.S. have caused a contagious chaos in the global financial markets and have subsequently led to a global economic recession. Empirical research also suggests that the performance of banks and the impact of the banking system on economic growth are significantly influenced by a country's institutional framework, such as government ownership of banks (La Porta et al., 2002, Micco et al., 2007 and Cornett et al., 2010) and institutional environment (Naceur and Ghazouani, 2007). Following a number of studies (e.g., Levine and Zervos, 1998, Beck et al., 2000, Levine et al., 2000 and Beck and Levine, 2004) which demonstrated that a sound banking system promotes better economic growth, Cole et al. (2008) investigate the relationship between banks and economic growth from the unique view points of market efficiency and asset pricing theory. Publicly traded banks are broadly representative of a country's banking sector. In an efficient market, banks’ stock prices will reflect their expected future cashflows, which in turn depend on the performance of the projects they financed. Therefore, banking industry stock returns will broadly reflect the performance of a country's banking sector. Since banks have played such an important role in promoting economic growth, there should be a relationship between bank stock prices and future economic growth. Not surprisingly, using the data from eighteen developed and eighteen emerging markets, they find a positive and significant relationship between bank excess return and short-term future economic growth that is independent of the market excess return, and this relationship is significantly affected by a series of country-specific and banking institutional characteristics. In this paper, we extend the work of Cole et al. (2008) and examine the relationship of bank stock prices and economic growth from a different angle. Bank excess return reflects the performance of a country's banking sector, while bank volatility may indicate the stability of bank performance. A certain degree of volatility is desirable since it reflects information flows in the efficient market, while “excessive” changes of stock prices may signify uncertainty of the future economic state. Naes et al. (2011) observe that stock volatility increases prior to economic recession. Moshirian and Wu (2009) find that banking industry volatility is a good predictor of a country's banking crises. The recent global economic recession had seen the global financial turmoil led by extreme volatility of banking industry stocks. Therefore, it is worthwhile to extend Cole et al.’s (2008) research and examine whether banking industry volatility contains information about future economic growth, and how those country-specific and banking institutional characteristics that affect the relationship between bank excess return and future economic growth influence the relationship between bank volatility and future economic growth. We address the issue using the recent generalized-method-of-moments (GMM) techniques for dynamic panel estimations. We first construct the portfolios of banks listed in domestic stock exchanges for 36 markets, including 18 developed markets and 18 emerging markets. We utilize the disaggregated approach from Campbell et al. (2001) to measure banking industry idiosyncratic volatility. This approach enables us to extract the banking industrial shock from the market and take into account the market capitalization of the components and the variations of all individual bank stock prices within the period rather than between the periods. We then examine the relationship between bank volatility and future economic growth for the panel data using dynamic panel GMM techniques, and investigate the impact of country-specific and banking institutional characteristics on the relationship between bank volatility and economic growth. We analyze the panel data for the full sample of all markets and the subsamples of developed markets and emerging markets respectively. We also run fixed-effect OLS panel estimations to check for robustness. This research extends the literature on banks and economic growth, and is related to the literature on stock markets and growth.2 Most of the empirical studies on the relationship between stock markets and short-term economic growth focus on stock market returns, which emerge from the asset pricing literature with the initial purpose of examining the sources of variation in stock returns (Fama, 1981, Fama, 1990, Schwert, 1990 and Liew and Vassalou, 2000). Empirical research on stock market volatility and economic growth is relatively sparse. In the cross-country studies, Levine and Zervos (1998) show that the initial level of stock market volatility is not robustly associated with long-run economic growth using data from 47 countries over the period from 1976 to 1993. By utilizing the vector autoregression (VAR) methodology, Arestis et al. (2001) find that the link between stock market volatility and future GDP growth rate is significantly negative in a time-series study covering five developed countries; they also suggest that the impact of stock market volatility on economic activity is inconclusive, and further research is needed on the channels through which stock market volatility may affect economic growth. Campbell et al. (2001) use a disaggregated approach to measure the volatility of common stocks at the market, industry and firm levels. They find that all these three volatility measures move together countercyclically and help to predict GDP growth. In an efficient market, the stock prices will adjust quickly to reflect the new information set available in the market. Given the dynamic nature of information flows, it is not surprising that Levine and Zervos (1998) find a weak static relationship between stock volatility and long run economic growth in the cross-country studies, while Arestis et al. (2001) and Campbell et al. (2001) find a stronger dynamic relationship between stock volatility and short-term economic growth in the time-series analyses. We examine the relationship between stock volatility and economic growth by employing the recent dynamic GMM techniques to analyze the panel data that includes both cross-country and time-series dimensions, therefore the findings of this research make an important contribution to the relevant empirical literature. This research provides empirical evidence complementary to Cole et al. (2008) who focus on the relationship between banking industry portfolio returns and future economic growth, and contributes to the literature on finance and growth from a few important aspects. Firstly, it is the first empirical study to investigate the relationship between banking industry volatility and future economic growth for a large number of countries. With the exception of Campbell et al. (2001) who link the average industry volatility to economic growth, previous research examines the relationship between growth and stock volatility at the market level. However, this research is different from Campbell et al. (2001) in two respects: firstly, they use the average industry volatility to predict economic growth whereas we focus exclusively on the banking industry volatility. Secondly, they analyze data only from U.S. equity markets while we analyze data from a sample of 36 markets over the period from 1973 to 2006. We find that the link between bank volatility and future economic growth is significantly negative for the sample of all markets, which is primarily driven by the data from the emerging market, whereas the negative link between bank volatility and future economic growth is negligible for developed markets. The result is consistent with the findings of the relevant literature that the emerging stock markets are more volatile than the developed markets ( Demirguc-Kunt and Levine, 1996). Secondly, we also investigate the channels through which banking industry volatility affects future economic growth. We find that systemic banking crises exert a negative impact on future economic growth due to bank volatility, which is an important finding complementary to Cole et al. (2008) who document a positive effect of banking crises on the link between bank excess returns and future economic growth; this finding is also consistent with what we observed during the recent global financial crisis Greater government ownership of banks distorts the allocation of financial resources (Sapienza, 2004 and Dincs, 2005) and negatively influences bank performance (Micco et al., 2007 and Cornett et al., 2010), and therefore undermines the positive link between bank excess returns and future economic growth (Cole et al., 2008). We find that government ownership of banks also eases the negative link between bank volatility and future economic growth, which is sensible as greater government ownership of banks may imply a government guarantee and thus alleviates the negative impact of banking industry shocks on future economic growth. The enforcement of the insider trading law may improve market efficiency and reduce information asymmetry, and therefore enhance the positive link between bank excess return and economic growth and also alleviates the negative impact of bank volatility on future economic growth. Cole et al. (2008) have documented prevailing evidence that financial development strengthens the positive link between bank excess returns and future economic growth. However, we find that the impact of financial development on the link between bank volatility and future economic growth is ambiguous, and is sensitive to different estimation methods, and in most cases, is not significant. This paper is structured as follows: Section 2 describes the data sets and the measurement of variables; Section 3 presents the methodology; Section 4 examines the link of banking industry volatility and future economic growth and the impact of the country-specific and institutional characteristics on this link using dynamic panel GMM estimations, and presents the empirical results of this paper; and Section 5 concludes.

Utilizing the dynamic panel GMM analyses, this study documents empirical evidence on the relationship between bank stock prices and future economic growth that is complementary to Cole et al.’s (2008) findings. We examine whether banking industry volatility, as an indicator of the stability of the banking sector's performance, contains information about future economic growth; and whether those country-specific and banking institutional characteristics that affect the relationship between bank excess return and future economic growth also influence the association between bank volatility and future economic growth. We find that the association between bank volatility and future economic growth is significantly negative for the sample including all markets, and this negative relationship is primarily induced by data from the emerging markets. Compared with the results of Cole et al. (2008) who investigate the impacts of a series of country-specific and banking institutional characteristics on the positive link between bank excess return and future economic growth, we find that systemic banking crises and banking accounting standards strengthen the positive link between bank excess returns and future economic growth, and also magnify the negative impact of bank volatility on future economic growth. Government ownership of banks undermines the positive relationship between bank excess returns and future economic growth but also relieves the negative association between bank volatility and future economic growth. The enforcement of the insider trading law enhances the positive connection between bank excess return and future economic growth and also alleviates the negative effect of bank volatility on future economic growth, although the latter effect is much weaker. The three indicators of financial development reinforce the positive relationship between bank excess return and future economic growth; however, their impact on the link between bank volatility and future economic growth is ambiguous and is sensitive to different estimation methods.