TY - JOUR
T1 - The determinants of stock prices
T2 - new evidence from the Indian Banking Sector
AU - Narayan, Paresh Kumar
AU - Narayan, Seema
AU - Singh, Harminder
N1 - Funding Information:
Here, ln denotes the natural log, SP is the share price index, IP is the industrial production index, ER is the real exchange rate (Indian rupee vis-à-vis the U.S. dollar), IR is the nominal ninety-day interest rate; subscript i = 1, ..., 13, representing each of the thirteen banks, and subscript t = 1998, ..., 2008 denotes time. Our data set is monthly, begins with June and ends with April, and culminates in 121 observations per bank and 1,573 observations for the panel. This makes it a relatively rich panel, sufficient for conducting the type of econometric modeling proposed in this paper. The bank stock price data is sourced from Bloomberg, and the rest of the data are downloaded from International Financial Statistics (IFS), published by the International Monetary Fund. The industrial production index has 2000 as the base year (2000 = 100), and the nominal exchange rate is converted into the real by using the U.S. and Indian consumer price indexes (CPIs). The monthly CPI series was also downloaded from the IFS.
Copyright:
Copyright 2014 Elsevier B.V., All rights reserved.
PY - 2014
Y1 - 2014
N2 - We examine the determinants of stock prices for major Indian banks using panel data modeling techniques. Our work is novel because, for the first time in the literature on Indian banking, we use a panel Granger causality test that reveals the direction and sign of causality. We find evidence of panel cointegration among stock prices, economic activity, interest rates, and exchange rates for thirteen banks. Our results suggest that while economic activity and currency depreciation contribute to a rise in share prices, an increase in the interest rate reduces bank share prices. Moreover, only economic activity Granger-causes stock prices in the long run.
AB - We examine the determinants of stock prices for major Indian banks using panel data modeling techniques. Our work is novel because, for the first time in the literature on Indian banking, we use a panel Granger causality test that reveals the direction and sign of causality. We find evidence of panel cointegration among stock prices, economic activity, interest rates, and exchange rates for thirteen banks. Our results suggest that while economic activity and currency depreciation contribute to a rise in share prices, an increase in the interest rate reduces bank share prices. Moreover, only economic activity Granger-causes stock prices in the long run.
KW - Indian banks
KW - panel cointegration
KW - panel Granger causality
UR - https://www.scopus.com/pages/publications/84904959730
U2 - 10.2753/REE1540-496X500201
DO - 10.2753/REE1540-496X500201
M3 - Article
AN - SCOPUS:84904959730
SN - 1540-496X
VL - 50
SP - 5
EP - 15
JO - Emerging Markets Finance and Trade
JF - Emerging Markets Finance and Trade
IS - 2
ER -