Bank stocks inform higher growth – A System GMM analysis of ten emerging markets in Asia

Mittal, Amit and Garg, Ajay Kumar (2018): Bank stocks inform higher growth – A System GMM analysis of ten emerging markets in Asia. Forthcoming in: Quarterly Review of Economics and Finance (2020)

Abstract

The paper aims to recover the critical role of banks in defining the relationship between Financial Development and growth. We hypothesize that Banks can positively motivate templatized GDP growth. A System GMM estimation of GDP growth in a sample of high growth emerging markets from Asia investigates if bank stocks contain information beyond the monetary and banking aggregates. In a sample of emerging markets with 5% GDP growth, bank stocks create 0.22% of GDP growth for every 1 SD excess return in a weighted portfolio of bank stocks. The chosen emerging markets are homogenous based on WGI Indicators from World Bank. This coefficient is much higher than the recovered relationship presented by Cole, Moshirian and Wu (2008). Government ownership of banks and close monitoring of banks is found to be a positive for the overall economy while the market index is found to be not so informative about economic growth. A relook at a GMM system study from Cole, Moshirian and Wu (2008) shows better growth for Emerging market investors without compromising quality. The research establishes the advantages of selecting emerging markets portfolios that reward better governance. A set of Homogenized emerging markets can engender higher causative effects between banks and GDP growth allowing investors to focus on investment opportunity.

Keywords: Banks, Economic Growth, Asia, Emerging Markets, GMM system, 2-step GMM

JEL: C23; F02; G21; G02; G14

The accepted version has additional hypotheses.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banks, Economic Growth, Asia, Emerging Markets, GMM system, 2-step GMM
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; F - International Economics > F0 - General > F02 - International Economic Order and Integration; F - International Economics > F6 - Economic Impacts of Globalization > F63 - Economic Development; F - International Economics > F6 - Economic Impacts of Globalization > F65 - Finance; G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General

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