Skip to main content

Advertisement

Springer Nature Link
Log in

Can money supply endogeneity influence bank stock returns? A case study of South Asian economies

  • Review
  • Published:
Environment, Development and Sustainability Aims and scope Submit manuscript

Abstract

This study tests the Post-Keynesian theory regarding bank stock returns and money supply endogeneity in the context of South Asian countries. This study uses panel data set from different sources over twenty-eight (28) years. The research uses different econometric techniques before switching to the generalized method of moments (GMM). The empirical results indicate a significant positive effect of net interest rate margins on bank loans in South Asian countries, whereas a positive relationship exists between foreign to local interest rates and the money supply. The findings depict that positive associations exist between inflation and money supply of banks, and between the money supply and bank stock returns. More specifically, the GMM results show that the money supply has positively affected the stock prices of banks suggesting strong policies for the stakeholders of these economies for the sake of economic growth and sustainable development.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
$34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Data availability

The data are available on request from corresponding author.

References

  • Aharony, J., Saunders, A., & Swary, I. (1986). The effects of a shift in monetary policy regime on the profitability and risk of commercial banks. Journal of Monetary Economics, 17, 363–377.

    Google Scholar 

  • Ahuja, H. (2010). Macroeconomic (Theory and Policy) (16 ed.). S. Chand Company Ltd.

  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58, 277–297.

    Google Scholar 

  • Avilov, O. (2021). Management of consumption according to the special role of need for safety. Ekonomicko-Manazerske Spektrum, 15(1), 75–83.

    Google Scholar 

  • Badarudin, Z. E., Ariff, M., & Khalid, A. M. (2013). Post-Keynesian money endogeneity evidence in G-7 economies. Journal of International Money and Finance, 33, 146–162. https://doi.org/10.1016/j.jimonfin.2012.11.014

    Article  Google Scholar 

  • Badarudin, Zatul Effawaty, Ariff, M., & Khalid, A. M. (2009). Bank stock returns under money supply endogeneity: Empirical evidence using panel data. In Manuscript for Australasian banking & finance conference (pp. 1–54).

  • Bae, S. C. (1990). Interest rate changes and common stock returns of financial institutions: Revisited. Journal of Financial Research, 13, 71–79.

    Google Scholar 

  • Bai, D., Jain, V., Tripathi, M., Ali, S. A., Shabbir, M. S., Mohamed, M. A., & Ramos-Meza, C. S. (2022). Performance of biogas plant analysis and policy implications: Evidence from the commercial sources. Energy Policy, 169, 113173.

    Google Scholar 

  • Barros, C. P., Ferreira, C., & Williams, J. (2007). Analyzing the determinants of performance of best and worst European banks: A mixed logit approach. Journal of Banking & Finance, 31, 2189–2203.

    Google Scholar 

  • Beccalli, E., Casu, B., & Girardone, C. (2006). Efficiency and stock performance in European banking. Journal of Business Finance & Accounting, 33, 245–262.

    Google Scholar 

  • Berger, A. N., & Bouwman, C. H. S. (2008). Bank liquidity creation. Review of Financial Studies, Forthcoming., 22(9), 3779–3837.

    Google Scholar 

  • Blazkova, I., & Dvoulety, O. (2018). Sectoral and firm-level determinants of profitability: A multilevel approach.

  • Booth, J. R., & Officer, D. T. (1985). Expectation, interest rates and commercial bank stocks. Journal of Financial Research, 8(1), 51–58.

    Google Scholar 

  • Butt, M. A., Ayub, H., Latif, B., Asif, F., Shabbir, M. S., & Raja, A. A. (2022). Financial risks and performance of conventional and Islamic banks: Do reputational risk matters? Journal of Islamic Accounting and Business Research, 2, 11–19.

  • Carbó Valverde, S., & Rodríguez Fernández, F. (2007). The determinants of bank margins in European banking. Journal of Banking & Finance, 31, 2043–2063.

    Google Scholar 

  • Cao, Y., Tabasam, A. H., Ali, S. A., Ashiq, A., Ramos-Meza, C. S., Jain, V., & Shabbir, M. S. (2022). The dynamic role of sustainable development goals to eradicate the multidimensional poverty: evidence from emerging economy. Economic Research-Ekonomska Istraživanja, 1–12.

  • Chance, D. M., & Lane, W. R. (1980). A re-examination of interest rate sensitivity in the common stocks of financial institutions. Journal of Financial Research, 3, 49–56.

    Google Scholar 

  • Cooper, M. J., Jackson, W. E., III., & Patterson, G. A. (2003). Evidence of predictability in the cross-section of bank stock returns. Journal of Banking and Finance, 27, 817–850.

    Google Scholar 

  • Dinenis, E., & Staikouras, S. K. (1998). Interest rate changes and common stock returns of financial institutions: Evidence from the UK. European Journal of Finance, 4, 113–127.

    Google Scholar 

  • Doskočil, R., Škapa, S., & Olšová, P. (2016). Success evaluation model for project management. E + M Ekonomie a Management, 19, 167–185.

    Google Scholar 

  • Durana, P., Michalkova, L., Privara, A., Marousek, J., & Tumpach, M. (2021a). Does the life cycle affect earnings management and bankruptcy? Oeconomia Copernicana, 12(2), 425–461.

    Google Scholar 

  • Durana, P., Perkins, N., & Valaskova, K. (2021b). Artificial intelligence data-driven internet of things systems, real-time advanced analytics, and cyber-physical production networks in sustainable smart manufacturing. Economics, Management, and Financial Markets, 16, 20–30.

    Google Scholar 

  • Ehsan, S., Tariq, A., Nazir, M. S., Shabbir, M. S., Shabbir, R., Lopez, L. B., & Ullah, W. (2021). Nexus between corporate social responsibility and earnings management: Sustainable or opportunistic. Managerial and Decision Economics, 43, 478–495.

    Google Scholar 

  • Fiordelisi, F. (2007). Shareholder value efficiency in European banking. Journal of Banking & Finance, 31, 2151–2171.

    Google Scholar 

  • Flannery, M. J., & James, C. M. (1984). The effect of interest rate changes on the common stock returns of financial institutions. Journal of Finance, 39, 1141–1153.

    Google Scholar 

  • Foster, J. (1992). The determinants of sterling M3, 1963–88: An evolutionary macroeconomic approach. The Economic Journal, 102, 481–496.

    Google Scholar 

  • Foster, J. (1994). An evolutionary macroeconomic model of Australian dollar M3 determination: 1967–93. Applied Economics, 26, 1109–1120.

    Google Scholar 

  • Gharehgozli, O., & Lee, S. (2022). Money supply and Inflation after COVID-19. Economies, 10(5), 101.

    Google Scholar 

  • Goddard, J., Molyneux, P., & Wilson, J. O. S. (2004). Dynamics of growth and profitability in banking. Journal of Money, Credit and Banking, 36, 1069–1090.

    Google Scholar 

  • Howells, P. G. A., & Hussein, K. (1998). The endogeneity of money: Evidence from the G7. Scottish Journal of Political Economy, 45, 329–340.

    Google Scholar 

  • Iannotta, G., Nocera, G., & Sironi, A. (2007). Ownership structure, risk and performance in the European banking industry. Journal of Banking & Finance, 31, 2127–2149.

    Google Scholar 

  • Jain, V., Ramos-Meza, C. S., Aslam, E., Chawla, C., Nawab, T., Shabbir, M. S., & Bansol, A. (2022). Do energy resources matter for growth level? The dynamic effects of different strategies of renewable energy, carbon emissions on sustainable economic growth. Clean Technologies and Environmental Policy, 2, 1–7.

  • Ji, G., Cheng, X., Kannaiah, D., & Shabbir, M. S. (2022). Does the global migration matter? The impact of top ten cities migration on native nationals income and employment levels. International Migration, 60, 111–128.

    Google Scholar 

  • Jun, W., Mughal, N., Zhao, J., Shabbir, M. S., Niedbała, G., Jain, V., & Anwar, A. (2021). Does globalization matter for environmental degradation? Nexus among energy consumption, economic growth, and carbon dioxide emission. Energy Policy, 153, 112230.

    Google Scholar 

  • Khursheed, A., Mustafa, F., Fatima, M., & Siddique, F. (2018). Entrepreneurial intentions: Gem based emipirical analysis on the Northern Europe and Asian countries. International Journal of Entrepreneurial Knowledge, 6(2), 59–70.

    Google Scholar 

  • Kirkwood, J., & Nahm, D. (2006). Australian banking efficiency and its relation to stock returns. Economic Record, 82, 253–267.

    Google Scholar 

  • Kovacova, M., Segers, C., Tumpach, M., & Michalkova, L. (2020). Big data-driven smart manufacturing: sustainable production processes, real-time sensor networks, and industrial value creation. Economics, Management and Financial Markets, 15(1), 54–60.

  • Kubalek, J., Camska, D., & Strouhal, J. (2017). Personal bankruptcies from macroeconomic perspective. International Journal of Entrepreneurial Knowledge, 5(2).

  • Kumari, R., Shabbir, M. S., Saleem, S., Khan, G. Y., Abbasi, B. A., & Lopez, L. B. (2021). An empirical analysis among foreign direct investment, trade openness and economic growth: Evidence from the Indian economy. South Asian Journal of Business Studies, 1, 24–31.

  • Liu, J., Jain, V., Sharma, P., Ali, S. A., Shabbir, M. S., & Ramos-Meza, C. S. (2022a). The role of sustainable development goals to eradicate the multidimensional energy poverty and improve social Wellbeing’s. Energy Strategy Reviews, 42, 100885.

    Google Scholar 

  • Liu, Y., Sharma, P., Jain, V., Shukla, A., Shabbir, M. S., Tabash, M. I., & Chawla, C. (2022b). The relationship among oil prices volatility, inflation rate, and sustainable economic growth: Evidence from top oil importer and exporter countries. Resources Policy, 77, 102674.

    Google Scholar 

  • Maroušek, J. (2013). Study on agriculture decision-makers behavior on sustainable energy utilization. Journal of Agricultural and Environmental Ethics, 26(3), 679–689.

    Google Scholar 

  • McConnell, C. R., & Brue, S. L. (2005). Economics (principles, problems and policies) (16th ed.). The McGraw-Hill Companies.

    Google Scholar 

  • McMillan, D. G. (2021). The time-varying relation between stock returns and monetary variables. Journal of Risk and Financial Management, 15(1), 9.

    Google Scholar 

  • Molyneux, P., Wang Q., Xie R., & Binru Zhao. “Bank funding constraints and stock liquidity.” The European Journal of Finance, 3, 1–16.

  • Muhammad, I., Ozcan, R., Jain, V., Sharma, P., & Shabbir, M. S. (2022). Does environmental sustainability affect the renewable energy consumption? Nexus among trade openness, CO2 emissions, income inequality, renewable energy, and economic growth in OECD countries. Environmental Science and Pollution Research, 29, 1–11.

    Google Scholar 

  • Muo, I., & Azeez, A. A. (2019). Green entrepreneurship literature review and agenda for future research. International Journal of Entrepreneurial Knowledge, 7(2), 17–29.

    Google Scholar 

  • Palley, T. I. (1994). Competing views of the money supply: Theory and evidence. Metroeconomica, 45, 67–88.

    Google Scholar 

  • Popescu, C. K., & Olah, J. (2020). Use of the Bland–Altman plot for graphical demonstration of results in the sharing economy. Ekonomicko-Manazerske Spektrum, 14(2), 90–99.

    Google Scholar 

  • Ramos Meza, C. S., Bashir, S., Jain, V., Aziz, S., Raza Shah, S. A., Shabbir, M. S., & Agustin, D. W. I. (2021). The economic consequences of the loan guarantees and firm’s performance: A moderate role of corporate social responsibility. Global Business Review, 3, 34–42.

  • Said, L. R., Bilal, K., Aziz, S., Gul, A., Shabbir, M. S., Zamir, A., & Abro, H. (2021). A comparison of conventional versus Islamic banking customers attitudes and judgment. Journal of Financial Services Marketing, 27, 1–15.

    Google Scholar 

  • Saleem, H., Shahzad, M., Khan, M. B., & Khilji, B. A. (2019). Innovation, total factor productivity and economic growth in Pakistan: A policy perspective. Journal of Economic Structures, 8(1), 7.

    Google Scholar 

  • Shabbir, M. S., & Wisdom, O. (2020). The relationship between corporate social responsibility, environmental investments and financial performance: Evidence from manufacturing companies. Environmental Science and Pollution Research, 27, 1–12. https://doi.org/10.1007/s11356-020-10217-0

    Article  Google Scholar 

  • Shabbir, M. S., Bashir, M., Abbasi, H. M., Yahya, G., & Abbasi, B. A. (2020a). Effect of domestic and foreign private investment on economic growth of Pakistan. Transnational Corporations Review, 13, 1–13.

    Google Scholar 

  • Shabbir, M. S., Aslam, E., Irshad, A., et al. (2020b). Nexus between corporate social responsibility and financial and non-financial sectors’ performance: A non-linear and disaggregated approach. Environmental Science and Pollution Research. https://doi.org/10.1007/s11356-020-09972-x

    Article  PubMed  Google Scholar 

  • Shabbir, M. S. (2022). Regulatory and Supervisory Regime of Islamic Banking System in Nigeria: Challenges, Constraints and Way Forward. Journal of Islamic Banking & Finance, 39(2).

  • Shahzadi, K., Malik, H., Shabbir, M. S., & Yasmind, A. (2021). Factors affecting profit distribution management of Islamic banks: Moderating role of corporate governance. Islamic Banking and Finance Review, 8(1), 78–102.

    Google Scholar 

  • Stiroh, K. J. (2006). A portfolio view of banking with interest and noninterest activities. Journal of Money, Credit & Banking, 38, 1351–1361.

    Google Scholar 

  • Su, C. W., Wang, X. Q., Tao, R., & Chang, H. L. (2019). Does money supply drive housing prices in China? International Review of Economics & Finance, 60, 85–94.

    Google Scholar 

  • Tarhan, V. (1987). Unanticipated interest rates, bank stock returns and the nominal contracting hypothesis. Journal of Banking and Finance, 11, 99–115.

    Google Scholar 

  • Uzun, H., & Webb, E. (2007). Securitization and risk: Empirical evidence on US banks. Journal of Risk Finance, 8, 11–23.

    Google Scholar 

  • Valaskova, K., Throne, O., Kral, P., & Michalkova, L. (2020). Deep learning-enabled smart process planning in cyber-physical system-based manufacturing. Journal of Self-Governance and Management Economics, 8(1), 121–127.

    Google Scholar 

  • Vochozka, M., & Vrbka, J. (2019). Estimation of the development of the Euro to Chinese Yuan exchange rate using artificial neural networks. In SHS Web of Conferences (Vol. 61, p. 01030). EDP Sciences.

  • Wang, G., Sadiq, M., Bashir, T., Jain, V., Ali, S. A., & Shabbir, M. S. (2022). The dynamic association between different strategies of renewable energy sources and sustainable economic growth under SDGs. Energy Strategy Reviews, 42, 100886.

    Google Scholar 

  • Yang, X., Ramos-Meza, C. S., Shabbir, M. S., Ali, S. A., & Jain, V. (2022). The impact of renewable energy consumption, trade openness, CO2 emissions, income inequality, on economic growth. Energy Strategy Reviews, 44, 101003.

    Google Scholar 

  • Yaqoob, N., Jain, V., Atiq, Z., Sharma, P., Ramos-Meza, C. S., Shabbir, M. S., & Tabash, M. I. (2022b). The relationship between staple food crops consumption and its impact on total factor productivity: Does green economy matter? Environmental Science and Pollution Research, 29, 1–10.

    Google Scholar 

  • Yaqoob, N., Ali, S. A., Kannaiah, D., Khan, N., Shabbir, M. S., Bilal, K., & Tabash, M. I. (2022a). The effects of agriculture productivity, land intensification, on sustainable economic growth: A panel analysis from Bangladesh, India, and Pakistan Economies. Environmental Science and Pollution Research, 3, 1–9.

  • Zehra, N., Umair, H., Shabbir, M. S., & Mallouli, A. E. (2022). The role of Islamic banking development and its impact on financial stability: Evidence from Morocco’s Financial Institutions. Pakistan Journal of Humanities and Social Sciences, 10(1), 354–365.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Accountancy, Anhui University of Finance and Economics, Bengbu, China

    Lingcai Liu

  2. National Skills University, Islamabad, Pakistan

    Taqadus Bashir

  3. Abu Dhabi University, Abu Dhabi, United Arab Emirates

    Alaa Amin Abdalla

  4. American University in the Emirates, Dubai, United Arab Emirates

    Asma Salman

  5. Universidad Andina del Cusco, Cuzco, Peru

    Carlos Samuel Ramos-meza

  6. Teerthanker Mahaveer Institute of Management and Technology, Moradabad, Uttar Pradesh, India

    Vipin Jain

  7. University of Lahore, Lahore, Pakistan

    Malik Shahzad Shabbir

Authors
  1. Lingcai Liu
    View author publications

    You can also search for this author inPubMed Google Scholar

  2. Taqadus Bashir
    View author publications

    You can also search for this author inPubMed Google Scholar

  3. Alaa Amin Abdalla
    View author publications

    You can also search for this author inPubMed Google Scholar

  4. Asma Salman
    View author publications

    You can also search for this author inPubMed Google Scholar

  5. Carlos Samuel Ramos-meza
    View author publications

    You can also search for this author inPubMed Google Scholar

  6. Vipin Jain
    View author publications

    You can also search for this author inPubMed Google Scholar

  7. Malik Shahzad Shabbir
    View author publications

    You can also search for this author inPubMed Google Scholar

Corresponding author

Correspondence to Malik Shahzad Shabbir.

Ethics declarations

Conflict of interest

The authors have declared no potential conflicts of interest concerning the research and publication of this article. The authors have not received any financial support for this research project.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Liu, L., Bashir, T., Abdalla, A.A. et al. Can money supply endogeneity influence bank stock returns? A case study of South Asian economies. Environ Dev Sustain 26, 2775–2787 (2024). https://doi.org/10.1007/s10668-022-02867-6

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10668-022-02867-6

Keywords

JEL Classification