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Time-varying conditional beta, return spillovers, and dynamic bank diversification strategies

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  • Wang, Lu

Abstract

This paper investigates how time-varying beta and return spillovers relate to bank diversification strategies conditional on market states, from a portfolio management approach. This paper explores the methods of estimating beta in a time-varying fashion for banking data. Further, it discovers the regime-switching relationship between bank betas and returns. Finally, this paper analyzes how the dynamic relationship between betas and returns implies to bank diversification strategies. The main findings are: 1) Bank betas are time-varying and the relationship between betas and returns in banking is regime-dependent; 2) banks use different diversification strategies in response to market movements conditional on market stability; 3) return spillovers among the banking industry affect bank returns through activity diversification.

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  • Wang, Lu, 2021. "Time-varying conditional beta, return spillovers, and dynamic bank diversification strategies," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 272-280.
    • Handle: RePEc:eee:quaeco:v:79:y:2021:i:c:p:272-280
    DOI: 10.1016/j.qref.2020.06.007
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    More about this item

    Keywords

    Bank; Beta; Diversification; Spillover;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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