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

Figures & data

Figure 1. Flow chart of study selection process.

Table 1. Most cited articles.

Author	Year	Title	Source	Total citation	TCpY
Elyasiani E, Mansur I	1998	Sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate: a Garch-M model	Journal of Banking and Finance	151	5.593
Elyasiani E	1992	The sensitivity of bank stock returns to market, interest and exchange rate risks	Journal of Banking and Finance	131	3.97
Peydró Jl	2018	Monetary policy and bank profitability in a low interest rate environment	Economic Policy	106	15.143
Brunetti C	2019	Interconnectedness in the interbank market	Journal of Financial Economics	74	12.333
Booth Jr, Officer Dt	1985	Expectations, interest rates, and commercial bank stocks	Journal of Financial Research	59	1.475
Madura J	2002	Sources of bank interest rate risk	Financial Review	57	2.478
Saunders A, Aharony J, Swary I	1988	The effects of DIDMCA on bank stockholders’ returns and risk	Journal of Banking and Finance	38	1.027
Saunders A	1986	The effects of a shift in monetary policy regime on the profitability and risk of commercial banks	Journal of Monetary Economics	38	0.974
Aharony J, Swary I	1986	The effects of a shift in monetary policy regime on the profitability and risk of commercial banks	Journal of Monetary Economics	38	0.974
Tai Cs	2000	Time-varying market, interest rate, and exchange rate risk premia in the US commercial bank stock returns	Journal of Multinational Financial Management	37	1.48
Brunetti C	2008	Markov switching Garch models of currency turmoil in Southeast Asia	Emerging Markets Review	30	1.765
Elyasiani E, Mansur I	2004	Bank stock return sensitivities to the long-term and short-term interest rates: a multivariate Garch approach	Managerial Finance	22	1.048
Madura J	2000	Effect of federal reserve policies on bank equity returns	Journal of Financial Research	22	0.88
Staikouras SK	2013	Exchange rate risk and the equity performance of financial intermediaries	International Review of Financial Analysis	19	1.583
Saunders A	1995	Bank Risk and Real Estate: An Asset Pricing Perspective	The Journal of Real Estate Finance and Economics	17	0.567

Source: Biblioshiny and Authors.

Table 2. Most prolific authors.

Authors	No. of articles	Total citations
Elyasiani E	5	321
Mansur I	4	189
Booth JR	3	68
Madura J	3	86
Officer DT	3	68
Saunders A	3	93
Aharony J	2	76
Ariff M	2	16
Brunetti C	2	104
Hassan MK	2	6

Source: Biblioshiny and Authors.

Table 3. Geographical distribution of sample banks.

Country	No. of articles
USA	29
Australia	4
Turkey	3
Japan	3
Indonesia	2
Canada	2
South Korea	1
Thailand	1
Spain	1
France	1
Germany	1

Source: Authors Compilation.

Figure 2. Word cloud.

Source: Word cloud map developed by authors using Biblioshiny.

Table 4. Summary of findings.

Authors	Title	Macro factors	Methodology	Findings
Moussa W., Mgadmi N., Regaieg R., Bejaoui A.	The relationship between gold price and the American financial market	Gold price	multi-model - Engle-Granger two-step cointegration approach, two-state Markov-switching model, DCC- FIAPARCH (1,d,1) model, ARCH and GARCH models	The positive association between the gold price and US bank stock returns
Killins R.N., Egly P.V., Batabyal S.	The impact of the yield curve on bank equity returns: evidence from Canada	Interest rate	fixed effect model	There is a positive relationship between the yield curve, the proxy for interest rate and the bank stock returns.
Thorbecke W.	Non-traditional monetary policy and the future of the financial industries	Monetary Policy	Multiple regression	A drop in the short-term rates and the spread (the difference between long and short-term rates) adversely affected the returns.
Ehouman Y.A.	Volatility transmission between oil prices and banks’ stock prices as a new source of instability: lessons from the United States experience	Oil Price	Vector Autoregressive Fractionally Integrated Moving Average (VARFIMA) model	The volatility in the shale oil prices has a significant impact on BSR.
Elyasiani E., Hasan I., Kalotychou E., Pouliasis P.K., Staikouras S.K.	Banks’ equity performance and the term structure of interest rates	Interest rate	DCC-MGARCH	The changes in the yield curve, that is, the level, slope, and curve, significantly impact bank stock returns.
Altavilla C., Boucinha M., Peydró J.-L.	Monetary policy and bank profitability in a low interest rate environment	Monetary Policy	Event Study	The change in monetary policies also significantly impacts BSR
Zaini V.I., Sadalia I., Fachrudin K.A.	The effect of external and internal factors on stock return with price to book value as moderation variables in banking companies in Indonesia stock exchange	Interest rate, Inflation and Exchange rate	Least squares, path analysis	Interest rates, exchange rates, and inflation have a significant negative influence on the returns of Indonesian banks.
Ekinci A.	The effect of credit and market risk on bank performance: evidence from Turkey	Interest rate, Exchange rate	GARCH	The exchange rate has a significant positive influence on BSR in Turkey, while the interest rate has an insignificant effect.
Gumanti T.A., Lestari A.R., Puspitasari N.	Central bank announcements on interest rate changes and stock prices of Indonesian banking industry	Monetary Policy	Event study method	The results indicated the presence of significant abnormal returns in bank stocks during the announcement dates.
Tamakoshi G., Hamori S.	Causality-in-variance and causality-in-mean between the Greek sovereign bond yields and southern European banking sector equity returns	Interest rate	Cross-Correlation Function	The long-term Greek government bond rates significantly affected the BSR in Portugal, Italy, and Spain, indicating an international volatility spill-over effect.
Viale A.M., Madura J.	Learning banks’ exposure to systematic risk: evidence from the financial crisis of 2008	Interest rate	two‐state Markov regime‐switching intertemporal capital asset pricing model	certain bank-specific factors influence the direction of the relationship between the returns and the interest rates. The sensitivity to interest rates depends on the size of the banks. The interest rate sensitivity varies directly with the variations in the net interest income and inversely with capital ratios for large banks. With small banks, interest rate sensitivity is directly related to the changes in net interest income, but non-interest income shows an inverse relationship.
Mamun A., Hassan M.K.	What explains the lack of monetary policy influence on bank holding companies?	Monetary Policy	Seemingly Unrelated Regression model	short-term and long-term rates influence the returns
Bessler W., Kurmann P.	Bank risk factors and changing risk exposures: capital market evidence before and during the financial crisis	Interest rate and Exchange rate	Ordinary Least Squares	Interest rate and BSR have a positive association. European banks are less sensitive to interest rates than US banks. The exchange rate has a significant negative influence on US banks but an insignificant impact on European banks’ returns. And further, they found that the risk exposures of small and large banks are different.
Akhtaruzzaman M., Shamsuddin A., Easton S.	Dynamic correlation analysis of spill-over effects of interest rate risk and return on Australian and us financial firms	Interest rate	Dynamic conditional correlation GARCH model	Australian banks’ stock returns are more interest rate sensitive than US banks. The former is sensitive to both domestic and foreign interest rates, and the relationship is negative, while the latter is insensitive to any of those.
Sukcharoensin P.	Time-varying market, interest rate and exchange rate risks of Thai commercial banks	Interest rate and Exchange rate	GARCH	banks are more sensitive to short-term interest rates than long-term ones. The direction of influence showed contrasting results. For some banks, the interest rates showed a positive effect, while for others, it showed a negative impact. The exchange rate risk has a negative impact on small bank stock returns, while large and medium banks are unaffected.
Küçükkocaoǧlu G., Ünalmiş D., Ünalmiş T.	How do banks’ stock returns respond to monetary policy committee announcements in Turkey? Evidence from traditional versus new monetary policy episodes	Monetary Policy	Heteroskedasticity-based GMM estimation technique	The stock returns reacted significantly to monetary policy announcements
Binici M., Köksal B.	Do bank stockholders share the burden of required reserve tax evidence from Turkey?	Monetary Policy	Event study	The increase in the reserve rate and the monetary policy requirement reduced the BSR. Further, the effect of an increase or decrease in the rates on BSR is not symmetric.
Gounopoulos D., Molyneux P., Staikouras S.K., Wilson J.O.S., Zhao G.	Exchange rate risk and the equity performance of financial intermediaries	Exchange rate	VAR-BEKK model	The changes in exchange rates of foreign and home currencies impact BSR. More importantly, the variations in the foreign currencies impacted the returns.
Ballester L., Ferrer R., González C.	Linear and nonlinear interest rate sensitivity of Spanish banks	Interest rate	Parametric: - Two-index linear regression model, Non-parametric tests	Interest rates negatively impact BSR and claimed that non-parametric tests provide more precise results than parametric tests.
Jain A., Narayan P.K., Thomson D.	The relationship between exchange rates, interest rates and Australian bank returns	Interest rate and Exchange rate	EGARCH	There is a significant negative relationship between interest rates and stock returns. The relation between exchange rate and return is positive.
Kasman S., Vardar G., Tunç G.	The impact of interest rate and exchange rate volatility on banks’ stock returns and volatility: evidence from turkey	Interest rate and Exchange rate	Ordinary Least Squares and GARCH	Interest rates and exchange have a strong negative influence on returns
Ureche-Rangau L., Burietz A.	Is there a link between the American S&L Crisis of the 80s and the Subprime Crisis? An analysis of bank returns	Monetary Policy	Event study	Among the monetary policy changes during the crisis period (savings and loans institutions and the subprime crises) in the US, only changes in interest rates impacted the returns.
Verma P., Jackson D.O.	Interest rate and bank stock returns asymmetry: evidence from U.S. banks	Interest rate	EGARCH	Short-term and long-term rates influence the returns
Vaz J.J., Ariff M., Brooks R.D.	The effect of interest rate changes on bank stock returns	Interest rate	Event Study	The increase in interest rates positively affected the returns
Lael Joseph N., Vezos P.	The sensitivity of US banks’ stock returns to interest rate and exchange rate changes.	Interest rate and Exchange rate	Ordinary Least Squares and EGARCH	There is a positive relationship between the exchange rate and BSR. Further, they identified a decline in the interest rate sensitivity of banks.
Bharati R., Nanisetty P., So J.	Dynamic gap transformations: are banks asset - transformers or brokers? Or both?	Interest rate	GARCH-M model	Interest rate volatilities significantly impacted the returns.
Azeez A.A., Yonezawa Y., Herath S.K.	Land prices and its effect on the Japanese bank stocks	Land price, Money supply, Inflation, Exchange rate and GDP	Iterated Non-Linear Seemingly Unrelated Regression model	Land prices, money supply, inflation, exchange rate, and GDP significantly impacted the returns. Land prices influence the returns independent of other macro factors.
Tai C.-S.	Asymmetric currency exposure of us bank stock returns	Exchange rate	GARCHM model	BSR is affected by exchange rate changes
Elyasiani E., Mansur I.	The association between market and exchange rate risks and accounting variables: a GARCH model of the Japanese banking institutions	Interest rate and Exchange rate	GARCH	Interest rate and the exchange rate have a significant impact on the returns. The exchange rate has a positive effect on the returns. The sensitivity of BSR towards the exchange rate is stronger than interest rates.
Faff R.W., Hodgson A., Kremmer M.L.	An investigation of the impact of interest rates and interest rate volatility on Australian financial sector stock return distributions	Interest rate	GARCHM model	Regulatory changes made by the government have a significant effect on returns, which further changed the direction of the relationship between interest rates and returns.
Aggarwal R., Jeon B.P., Zhao X.	Bank exposure to interest rate risks during financial liberalization: evidence from South Korea	Interest rate	Seemingly Unrelated regression model	when banks and financial markets are liberalised, the interest rate sensitivity of banks is reduced. Prior to the liberalisation, bank stocks were sensitive to both short and long-term rates and expected and unexpected rates, but post-liberalisation, they were only sensitive to unexpected short-term rates. The direction of these sensitivities might depend on the maturity mismatch between the assets and liabilities of the bank balance sheet, and the significance depends on the volatilities in the regulatory and financial markets.
Elyasiani E., Mansur I.	Bank stock return sensitivities to the long-term and short-term interest rates: a multivariate GARCH approach	Interest rate	MGARCH	Both interest rates and volatilities significantly impact the returns. They found a negative relationship between BSR and the changes in interest rates and volatilities in BSR and volatilities in interest rates. However, the relation is positive in the case of BSR, and volatilities of interest rates are considered.
Elyasiani E., Mansur I.	International spillover of risk and return among major banking institutions: a bivariate GARCH model	Interest rate and Exchange rate	Bivariate GARCH model	The exchange rate has a significant positive impact on BSR in all the countries, while the long-term interest rates have insignificant negative effects.
Saporoschenko A.	The sensitivity of Japanese bank stock returns to economic factors: an examination of asset/liability differences and main bank status	Interest rate and Exchange rate	GARCH(1,1) with AR(1) error modelling	The long-term interest rates had a significant negative relationship with the returns. The analysis revealed that Japanese banks are not very sensitive to exchange rate changes.
Dennis S.A., Jeffrey A.	Structural changes in Australian bank risk	Interest rate and Exchange rate	Switching regression method	The interest and exchange rates showed a weak relationship with the returns compared to the earlier studies.
Fraser D.R., Madura J., Weigand R.A.	Sources of bank interest rate risk	Interest rate	Ordinary Least Squares	There is a negative relation between bank stock returns and the changes in interest rates. The relation is affected by certain bank-specific characteristics.
Goldberg L.G., Kabir R.	The stock market performance of the central banks of Belgium and Japan	GDP, Industrial production, Inflation, Money supply, Gold price, Unemployment rate, Discount rate and Exchange rates.	Event study, univariate and multivariate regression	The macroeconomic factors do not influence the stock returns of the central banks
Atindéhou R.B., Gueyie J.-P.	Canadian chartered banks’ stock returns and exchange rate risk	Interest rate and Exchange rate	Pooled Ordinary Least Squares	There exists a negative relationship between interest rates and the returns in individual banks and portfolio banks. The result is similar when unexpected interest rates are used. The exchange rates also show a significant relationship with the returns. The returns were more sensitive to the exchange rate with the US Dollar, with a positive relation but less susceptible to the basket G10 country currencies.
Tai C.-S.	Time-varying market, interest rate, and exchange rate risk premia in the US commercial bank stock returns	Interest rate and Exchange rate	Multivariate GARCH-M approach	Interest rates and exchange rates have a significant impact on US bank stock returns. Among market, interest and exchange rates, interest rate is the major determinant of BSR.
Madura J., Schnusenberg O.	Effect of federal reserve policies on bank equity returns	Monetary Policy	Multiple regression	There is a significant relationship between BSR and the Federal Reserve policy announcements. A decrease in the interest rates has a significant negative relation with the returns, while the increase in rates also showed a negative but less significant relation.
Lajeri F., Dermine J.	Unexpected inflation and bank stock returns: the case of France 1977-1991	Interest rate and Inflation	ARIMA Model, Ordinary Least Squares	Banks are sensitive to interest and inflation, while non-banking firms are sensitive only to interest rates. So, banks’ stock return generating process includes yet another variable, inflation, apart from the interest rates.
Wetmore J.L., Brick J.R.	The basis risk component of commercial bank stock returns	Interest rate and Exchange rate	Ordinary Least Squares	Banks are sensitive to interest and exchange rate risks
Kilic O., Hassan M.K., Tufte D.R.	An empirical investigation of U.S. bank risk and the Mexican peso crisis	Interest rate and Exchange rate	Ordinary Least Squares	Interest rates and foreign exchange rates had significant impacts on the returns.
Elyasiani E., Mansur I.	Sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate: a GARCH-M model	Interest rate	GARCH-M model	Long-term interest rates have a significant negative association with returns. The results also showed that interest rate volatility significantly impacts returns.
Kaen F.R., Sherman H.C., Tehranian H.	The effects of Bundesbank discount and Lombard rate changes on German bank stocks	Monetary Policy	Multivariate Regression Model	the effect of the German central bank policy changes, especially the changes in the rates at which the central banks lend loans to the banks, on the bank stock returns in Germany. The results indicated that an increase in the rates resulted in negative returns, while a decrease in the rates had positive returns.
Choi J.J., Elyasiani E., Kopecky K.J.	The sensitivity of bank stock returns to market, interest and exchange rate risks	Interest rate and Exchange rate	ARIMA Model, OLS, pooled time-series cross-section	The interest and exchange rates significantly impact the returns, but the exchange rate has a significant independent influence on the returns apart from the interest rate and the market return.
Kwan S.H.	Re-examination of interest rate sensitivity of commercial bank stock returns using a random coefficient model	Interest rate	Seemingly Unrelated regression model	Commercial bank stock returns and unexpected interest rates, both short-term and long-term, are related. The maturity composition of assets and liabilities explains the effect of unexpected interest rates on BSR.
Harris J.M., Wayne Marr M., Spivey M.F.	Exchange rate movements and the stock returns of U.S. commercial banks	Exchange rate	Ordinary Least Squares, Generalised least squares model	banks’ stock returns are sensitive to exchange rate changes. Bank stock sensitivity is correlated to the degree of foreign operations of the banks, which is measured using the number of foreign branches and the ratio of foreign deposits to total assets.
Akella S.R., Chen S.‐J.	Interest rate sensitivity of bank stock returns: specification effects and structural changes	Interest rate	two-factor model	BSR is sensitive to long-term government rates and not to short-term rates. The econometric model used and the study period significantly influence the interest rate sensitivity
Aharony J., Saunders A., Swary I.	The effects of DIDMCA on bank stockholders’ returns and risk	Monetary Policy	Event study	The announcement of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of March 1980 resulted in abnormal returns for all the banks (group of money-centre, regional and thrift). Analysing the interest rate sensitivity, the banks were less sensitive to interest rates prior to the act announcement compared to the period after.
Tarhan V.	Unanticipated interest rates, bank stock returns and the nominal contracting hypothesis	Interest rate	Seemingly Unrelated regression model, Spearman’s rank correlation and event study	BSR and unexpected interest rates have a significant statistical relationship. The relationship between the maturity mismatch between assets and liabilities of the banks and their interest rate sensitivity is non-existent. The implications of the nominal contracting hypothesis are not significant in determining bank stock returns.
Aharony J., Saunders A., Swary I.	The effects of a shift in monetary policy regime on the profitability and risk of commercial banks	Interest rate	Event study	There were unusual returns for bank stocks during the week of the announcement. When the unusual returns were divided into two parts, one related to unanticipated interest rates and the other independent, the outcomes revealed a negative correlation between the returns and both the unexpected interest rates and the variability of the rates.
Booth J.R., Officer D.T.	Expectations, interest rates, and commercial bank stocks	Interest rate	pooled cross-section, time-series regression	BSR is sensitive to actual, expected, and unexpected interest rates independent of the market rate effects. Additionally, bank stocks are highly sensitive compared to non-financial firms.
Booth J.R., Officer D.T., Henderson G.V.	Commercial bank stocks, interest rates, and systematic risk	Interest rate	Ordinary Least Squares	There is a positive relation between the changes in interest rates and bank equity values.
Lynge M.J., Jr., Zumwalt J.K.	An empirical study of the interest rate sensitivity of commercial bank returns: a multi-index approach	Interest rate	multi-index model	bank stocks are more highly interest-rate sensitive than non-financial stocks.
AKELLA, SR; GREENBAUM, SI	Innovations in interest-rates, duration transformation, and bank stock returns	Interest rate	Ordinary Least Squares; Seemingly Unrelated regression	bank stocks are responsive to unexpected interest rate changes, and this sensitivity can be explained by the variations in the maturities of assets and liabilities
MEI, JP; SAUNDERS, A	Bank risk and real-estate - an asset pricing perspective	Interest rate	Generalised method of moments (GMM)	The interest rates significantly impact BSR.
Akhtaruzzaman, Md; Docherty, Paul; Shamsuddin, Abul	Interest rate, size and book-to-market effects in Australian financial firms	Interest rate	Generalised method of moments (GMM)	The results indicated that interest rate changes significantly negatively impacted bank stock returns. They stated that the negative sensitivity is related to the positive duration gap (lend longer than and borrow short-term). The curvature is not a significant determinant of the BSR. The Fama-French model is not a suitable model for Australian bank stock returns. The changes in interest rates and term spread (slope) are priced in BSR.
Crouzille, Celine; Lepetit, Laetitia; Tarazi, Amine	Reaction of European bank stock prices to events of the Asian and Russian financial crises	Financial Crises	event study and seemingly unrelated regression	The results indicated that BSR did not react to Asian crises but significantly reacted to Russian crises. Their results also suggested the possibility of contagion effects among banks.
Igan D.; Mirzaei A.; Moore T.	Does macroprudential policy alleviate the adverse impact of COVID-19 on the resilience of banks?	Macroprudential Policy	Ordinary Least Squares	There is a significant association between macroprudential policies and BSR. The upward or downward movement of the returns also depends on the components of these policies.
Tanin T.I.; Hasanov A.S.; Shaiban M.S.M.; Brooks R.	Risk transmission from the oil market to Islamic and conventional banks in oil-exporting and oil-importing countries	Oil Price	trivariate version of the asymmetric GARCH-BEKK model,	Oil prices significantly influence the bank stocks in oil-exporting countries and conventional banks in both oil-exporting and oil-importing countries compared to Islamic banks
Ari Y.	The CARR-volatility connectedness between USD/TRY and foreign banks in Turkey: evidence by TVP-VAR	Exchange rate	Conditional Autoregressive Range (CARR) model, Time-Varying Parameter- Vector Autoregressive (TVP-VAR) based Diebold–Yilmaz Connectedness Index	the stocks of banks operating abroad were significantly impacted by the exchange rate volatilities of the specific country in which they operate
Albaity, M; Mallek, RS; Mustafa, H	Heterogeneity of investor sentiment, geopolitical risk, and economic policy uncertainty: do Islamic banks differ during covid-19 pandemic?	Oil Price	unconditional quantile regression (UQR)	The oil price has a significant positive impact during low volatility periods, and in high volatility periods, the relation is negative and insignificant. Also, the relation between Islamic BSR and oil prices was found to be negative.
Patsoulis, P	Abnormal stock returns of Greek banks during covid-19: an event study	Monetary Policy	Event Study, nonparametric generalised rank (GRANK) test	Monetary policy announcements during the COVID-19 pandemic have little or no significant effect on BSR