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The association between financial market volatility and banking market structure

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  • Crimmel, Jeremy
  • Elyasiani, Elyas

Abstract

We investigate whether banking market structure is associated with financial market volatility. A difficulty with achieving this task is the low frequency of the market structure data relative to the high frequency of volatility data. To overcome this problem, we employ a GARCH-MIDAS model that relates data with dissimilar frequencies. We employ both banking concentration and bank competition as measures of market structure. We find evidence that greater banking concentration is positively associated with higher volatility in the US stock, corporate bond, and Treasury markets, but no evidence of an association between banking competition and financial market volatility.

Suggested Citation

  • Crimmel, Jeremy & Elyasiani, Elyas, 2021. "The association between financial market volatility and banking market structure," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 335-349.
    • Handle: RePEc:eee:quaeco:v:82:y:2021:i:c:p:335-349
    DOI: 10.1016/j.qref.2021.09.012
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    More about this item

    Keywords

    Banking concentration; Bank competition; Financial market volatility; GARCH-MIDAS;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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