Time variation paths of factors affecting financial institutions and stock returns

This study finds evidence that three risk factors relating to the stock market, bond market, and real estate market are important in explaining the risk premiums included in financial institutions and bank stock returns. Stock returns for insurance companies are not sensitive to changes in the bond...

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Bibliographic Details
Published inAtlantic economic journal Vol. 31; no. 1; pp. 71 - 86
Main Authors Reichert, Alan, He, Ling
Format Journal Article
LanguageEnglish
Published New York International Atlantic Economic Society 01.03.2003
Springer
Springer Nature B.V
SeriesAtlantic Economic Journal
Subjects
Bond markets
Economic models
Financial institutions
Laws, regulations and rules
Risk premiums
Securities markets
Stock prices
Studies
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Summary:This study finds evidence that three risk factors relating to the stock market, bond market, and real estate market are important in explaining the risk premiums included in financial institutions and bank stock returns. Stock returns for insurance companies are not sensitive to changes in the bond market. The Flexible Least Squares (ELS) results indicate that the stock market factor has the most important and stable impact on risk premiums for financial institutions, banks, and insurance companies. The bond market is the primary source of instability in stock returns for these three groups of stocks. This research adds further support for using market discipline, especially as it relates to equity returns to enhance the prudential regulation of the financial sector. (JEL G29)
ISSN:0197-4254
1573-9678
DOI:10.1007/BF02298464