SAJMS - South Asian Journal of Management Sciences

The Determinants of Bank Stock Prices: A Panel Approach

The current study used panel data to empirically analyze the determinants of stock prices and for that monthly closing stock prices of eight main banks of Pakistan were taken for the period from January 2005 till December 2013. Various unit root and cointegration techniques were employed for analysis besides Granger Causality. The results indicated increase in share prices in response to boom in economic activity, whereas bank share prices declined in response to currency depreciation and interest rate increase. Furthermore, in long-run, Granger causality is witnessed among economic growth, nominal exchange rate and bank stock prices. Interest rate and bank stock prices Granger cause each other and hence, exhibit a bi-directional causality. The fi ndings of the current study have signi cant implications for portfolio advisors, risk management framework of banks and their regulators.

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