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The Effects of Macroeconomic Variables on US Bank Stock Returns

Pigott, Keith (2020) The Effects of Macroeconomic Variables on US Bank Stock Returns. Masters thesis, Dublin, National College of Ireland.

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Abstract

Macroeconomic variables play an important role in an economy as they can help in determining the financial and economic situation within an economy. Since the financial crisis the financial strength of banks within the US have improved due to an increase in their balance sheets and more appropriate corporate governance. The objective of this paper is to investigate the effects of macroeconomic variables on the US bank stock returns by using monthly observations over a 11-year period ranging from January 1st 2009 to December 31st 2019. The financial variables used included Fed Fund Rate, consumer price index and money supply. The real economy variables used are personal consumption expenditure, unemployment and total nonfarm payroll. The KBW Index was used as the proxy for the US Bank stock returns.

Single and multiple regression were both carried out in order to determine the relationship between the financial variables and the KBW Index and the real economy variables and the KBW Index. A number of diagnostic tests were carried out on the data including multicollinearity to check for any potential linear relationship among the explanatory variables and heteroscedasticity to test the dispersion of variance. In relation to the single regression results the strongest model for the financial variables was the KBW Index vs money supply with the largest R square value of 87.82%. The b value for all three of the models were positive and significant. For the multiple regression models for the financial variable models all the models had similar strong R square values ranging between 86% and 88%. For the KBW Index vs Fed Fund rate and consumer price index model the f value was significant. In relation to the single regression results for the real economy variables the model with the largest R square value was the personal consumption expenditure model with a value of 88%. However, all three of the models had an R square value above 80% which represents a strong relationship. All the p values for the single regression models are significant. In regards to the multiple regression models all the models had a strong R square value ranging between 86% and 88%. However, many of the b values of the regression coefficients were not significant.

Keywords: Fed Fund Rate, consumer price index, money supply, personal consumption expenditure, unemployment, total nonfarm payroll, KBW Index, Multiple regression and correlation analysis

Item Type: Thesis (Masters)
Subjects: H Social Sciences > HG Finance > Banking
H Social Sciences > HG Finance > Investment
H Social Sciences > Economics > Macroeconomics
Divisions: School of Business > Master of Science in Finance
Depositing User: Dan English
Date Deposited: 16 Feb 2021 10:49
Last Modified: 16 Feb 2021 10:49
URI: http://norma.ncirl.ie/id/eprint/4771

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