Open AccessInternal and External Factors of Future Returns in the Banking Business: Time Series Analysis of Interrelationship
Author(s) -
Kwabena A. Kyei,
Albert Antwi
Publication year - 2017
Publication title -
journal of economics and behavioral studies
Language(s) - English
Resource type - Journals
ISSN - 2220-6140
DOI - 10.22610/jebs.v9i1(j).1559
Subject(s) - econometrics , return on equity , multivariate statistics , economics , mathematics , loan , linear regression , statistics , inflation (cosmology) , smoothing , variables , finance , profitability index , physics , theoretical physics
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.