Internal and External Factors of Future Returns in the Banking Business: Time Series Analysis of Interrelationship

  • Kwabena A Kyei Department of Statistics, University of Venda, Limpopo province, South Africa
  • Albert Antwi Department of Statistics, University of Venda, Limpopo province, South Africa
DOI: https://doi.org/10.22610/jebs.v9i1(J).1559
Keywords: Return on Equity; Loan; inflation; market imperfection; multivariate modelling; Return on Assets; lagging

Abstract

The paper seeks to find the interrelationship between internal and external factors of future returns in the banking business. A multivariate time series regression models are fitted for the dependent variable: return on equity (ROE) against the lag one independent variables, namely: deposit, size, loan, capital, inflation, gross domestic product (GDP) and stock market capitalization (SMC), for ABSA bank; using secondary data, which span from 1998 to 2014 fiscal years. Logarithm transformation of the absolute value of the de-trended data and first differencing at lag one were the smoothing techniques applied to the data. Multivariate time series regression by the least square approach with special consideration of the stepwise method was used in fitting the models to the data. Results indicated that first, there is a positive linear relationship between ROE and loans, a negative linear relationship between ROE and inflation from the differencing techniques; and equally a negative log-linear relationship between ROE and capital as well as a positive log-linear relationship between ROE and ROA for the logarithm de-trend technique.

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Published
2017-03-12
How to Cite
Kyei, K. A., & Antwi, A. (2017). Internal and External Factors of Future Returns in the Banking Business: Time Series Analysis of Interrelationship. Journal of Economics and Behavioral Studies, 9(1(J), 82-89. https://doi.org/10.22610/jebs.v9i1(J).1559
Issue
Vol 9 No 1(J) (2017)
Section
Research Paper

Copyright (c) 2017 Journal of Economics and Behavioral Studies

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