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Bank Stock Returns Under Money Supply Endogeneity: Empirical Evidence Using Panel Data, Zatul Badarudin, Mohamed Ariff, Ahmed Khalid

Ahmed Khalid

There is as yet a study of money supply effect on the aggregate bank stock prices using modern money supply theories. Endogenous money theory suggests loans made by banks cause deposits, and, consequently, bank creates money supply. Resulting changes in bank’s loans and deposits affects bank stock returns: Also, consequent credit creations/reductions affect a bank’s profitability, thus stock prices. Whether money endogeneity is in fact the way the money supply behaves has also not yet been widely tested. Applying panel regression and generalized method of moments, this paper provides new evidence on this little explored relationship between endogenous money supply …