Macro-financial nexus: a systematic review on the impact of macroeconomic factors on bank stock returns

Abstract

The performance of bank stocks exhibits a country’s overall financial health and signals economic growth. Therefore, understanding the interaction of macroeconomic factors on bank stock returns is crucial for the valuation of financial assets, especially in a highly volatile stock market. Although macroeconomic factors and their impact on bank stock returns have been extensively investigated, there is still a dearth of comprehensive review articles in this domain. To address this lacuna, we conducted a systematic review to identify the macroeconomic determinants driving bank stock returns. Through a systematic search, 64 articles were identified from two electronic databases for literature synthesis based on inclusion and exclusion criteria from 1980–2023. The review posits valuable insights into the macroeconomic factors that influence bank stock returns, the nuances of the variables’ effects and the methodologies employed in these studies. The key macroeconomic factors identified include interest and exchange rate sensitivity, which has been studied extensively; however, the impact of monetary policies, gold prices and oil prices needs further investigation. Subsequently, the study documents various bank-specific characteristics that influence the relationship between macroeconomic factors and bank stock returns.

Keywords:

• Bank stock returns
• interest rate
• exchange rate
• oil prices
• macroeconomic factors
• asset pricing

REVIEWING EDITOR:

• David McMillan, University of Stirling, United Kingdom

SUBJECTS:

• Economics
• Finance
• Business, Management and Accounting

JEL Classification:

• E00
• G20
• G21
• G28

Acknowledgement

Aleena Joseph is a recipient of the Indian Council of Social Science Research Doctoral Fellowship. The article is largely an outcome of the doctoral work sponsored by ICSSR. However, the responsibility for the facts stated, opinions expressed, and the conclusions drawn is entirely that of the authors.

Disclosure statement

The authors reported no potential conflict of interest.

Additional information

Funding

The authors received no specific funding to conduct this systematic review.

Notes on contributors

Aleena Joseph

Aleena Joseph is a research scholar at the Department of Commerce, Manipal Academy of Higher Education in Manipal. The author’s research interests encompass corporate finance and banking.

Geetha E

Dr. Geetha E is an Associate Professor at the Department of Commerce, Manipal Academy of Higher Education (MAHE) in Manipal. The author’s research interests includes developmental economics, E-commerce, Innovative Business strategies, Entrepreneurship, Business Finance, Corporate governance, and Banking, with publications in Scopus and ABDC-listed journals.

Rohith Radhakrishnan

Mr. Rohith Radhakrishnan, Senior Research Fellow from the Department of Commerce, Manipal Academy of Higher Education, Manipal. The author’s research interests revolves around the area of earnings management, financial reporting quality and corporate governance.

Raksha Jain

Raksha Jain is a PhD research scholar at the Department of Commerce, Manipal Academy of Higher Education in Manipal, specialising in Business Finance with a current research focus on Agricultural Finance, International Trade and Macroeconomics.