2009 International Conference on Information Management, Innovation Management and Industrial Engineering
An Analysis On Correlation of Factors Affecting Bank Share Prices
Li Guoyi
Financial Institute
Harbin University of Commerce,HRBCU
Harbin, China
E-mail: liguoyi4508820@163.com
Abstract—As weighted shares, price volatility of bank
shares has a significant impact on the direction of the
share market. In this paper, total equity, after-tax
profits per share, GDP and the market index are
adopted as the important relevant factors affecting bank
share price. Meanwhile, these factors are analyzed and
verified through the related test model to see if there is
any relevance between them and the bank share prices
at the end of the reporting period, so that some reference
can be offered to the investors for decision making.
Keywords- the share market.;bank; share price; influential
factors; correlation
I. INTRODUCTION
As weighted shares in Shanghai and Shenzhen stock
exchanges, price volatility of bank shares has a significant
impact on the direction of the Chinese share market.
Meanwhile, bank share is also one of the core components of
China's economic system; therefore the trend of bank share
prices can be taken as an important indicator for the overall
macro economy of China. It is safe to say that it is of
important theoretical and practical significance to analyze
the factors affecting the bank share prices as well as the
relevance of these factors.
Theoretical analysis and econometric tests have been
carried out by Zhang Shaobin etc [1] with the intension to
find out the relationship between stock prices index and the
short-term/long-term interest rates at home and abroad. They
concluded that there were negative correlation between stock
prices index and nominal/real short-term interest rates. The
results of the Empirical studies conducted by Kadle etc [2-4]
indicate that multiple listing can result in the increase of both
share prices and the market value of enterprises because it
can effectively enlarge the investor base and improve market
liquidity. By means of fractal statistics and chaotic dynamics
Mulligan [5] concluded that the financial market is a
complex nonlinear dynamic system with low-dimensional
chaos, and thus stock prices moves in fractional Brownian
motion and has the characteristics of memory effect and non-
periodic cycle. On the basis of empirical studies, Wei Zhiyu
etc [6] reported that there is a strong positive interaction
978-0-7695-3876-1/09 $26.00
$25.00 © 2009 IEEE
DOI 10.1109/ICIII.2009.404
Liu Renzhong
Financial Institute
Harbin University of Commerce,HRBCU
Harbin, China
e-mail: liurenzhongzl@yahoo.com.cn
between stock prices index and economic growth; higher
rates of economic growth can lead to the increase the returns
of stock market, which can further result in improved
economic growth, thus boosting the share price. After
calculating Pearson correlation coefficient, Kendall tau rank
correlation coefficient and Spearman's rank correlation
coefficient of the major financial indicators for companies
listed in Shenzhen market, Wen Haitao etc [7] concluded
that there is definite relevance between the financial
indicators of China's listed companies and stock prices. The
research conducted by Li Xudan [8] shows that the drop of
share prices is mainly caused by previous prices rise, growth
rate of earnings per share, tradable shares proportion and
other factors.
Researches specifically targeted at the volatility of bank
share prices are:
According to the calculation by Xiong Zhaoxin [9] of the
co-integration relationship between the share prices data of
the Bank of China in Hong Kong and the data in Shanghai,
there is one-way Granger causality between the share prices
volatility of the two markets, and the prices of the Bank of
China in the mainland stock market will affect the trend of
Hong Kong stock market. However, the stock prices in Hong
Kong market do not have significant impact on the Mainland
stock market. With the financial reports on 14 Chinese A-
share listed banks in 2007 as the sample, Liu Guisheng [10]
has carried out concentrated and systematic analysis in order
to find out the influence of fair value measurement on the
financial volatility of China's banks. He has come to the
conclusion that fair value measurement does not form a
substantial impacton the performance of China's listed banks,
and thus it has no relevance with the share prices volatility.
The status quo of research at home and abroad indicates
that most researches only analyze the relevance of share
prices volatility with a single factor, few incorporate multi
factors into the same model to study the correlation between
these factors and share prices volatility, especially in a single
sector.
II. MODEL ASSUMPTIONS AND TESTING
Though there are a variety of factors affecting the share
prices volatility, they can be divided into two categories in
394
terms of sphere of influence: systemic factors and non- 12
Series: X1
systematic factors. Systemic factors are those that can Sample 1 36
10
influence most markets and even the overall market, such as Observations 36

GDP growth, interest rates, exchange rates and related 8 Mean 15.78140
Median 16.69369
macroeconomic policies. Non-systemic factors are those that 6
Maximum 17.03823

can only affect individual listed companies, mainly referring Minimum

Std. Dev.
13.71015
1.343687
to the micro aspects, such as Equity of Tradable Shares, total 4 Skewness
Kurtosis
-0.505407
1.531063
equity, growth rate of earnings per share, after-tax profits per 2
Jarque-Bera 4.769277
share and net asset growth rate. In this paper, total number of Probability 0.092122
0
shares, net asset per share, after-tax profits per share, end- 14 15 16 17
period GDP and market index are adopted as indicators for
the analysis of their relevance with bank share prices every Figure 2. Descriptive Statistics of the Variable X1
quarter.
Equation Design: 8
Series: X2
7 Sample 1 36
Observations 36
Y = c + c1 X 1 + c 2 X 2 + c3 X 3 + c 4 X 4 + c5 X 5 6
Mean 0.631456
5 Median 0.584970
Maximum 1.134623
4
Wherein, Minimum
Std. Dev.
0.270027
0.219663
3
Y —Closing prices at the end of a quarter 2
Skewness
Kurtosis
0.706926
2.845959

X 1 —Total equity (Equity of Tradable Shares) Note: the 1 Jarque-Bera 3.034058

Probability 0.219363
shares of ICBC, BOC, CCB and BoComm were all tradable 0
0.4 0.6 0.8 1.0
when listed; therefore, total equity = Equity of Tradable
Shares
X 2 —Net assets per share Figure 3. Descriptive Statistics of the Variable X2

X 3 —After-tax profit Per share

10
Series: X3
X 4 —End-period GDP Sample 1 36
8 Observations 36
X 5 —Market index Mean -2.017948

c1−5 —Correlation coefficient items 6 Median

Maximum
-2.120264
-0.544727

c —Constant term 4
Minimum
Std. Dev.
-2.813411
0.590782
The index in Shanghai Exchange is adopted as the Skewness
Kurtosis
0.639818
2.540596
market index, represented by the closing index. Replace the 2
variables in the above equation with natural logarithms, Jarque-Bera
Probability
2.772783
0.249976
using the data of ICBC, BOC, CCB and BoComm in each 0
-3.0 -2.5 -2.0 -1.5 -1.0 -0.5
quarter since listed (36 samples), the results of the
calculation are shown in Figure 1-6. Figure 4. Descriptive Statistics of the Variable X3

6
Series: Y 9
Sample 1 36 Series: X4
5 Observations 36 8 Sample 1 36
7 Observations 36
4 Mean 1.749181
Median 1.708363
6 Mean 24.93908
Maximum 2.748552
3 Minimum 1.088562 Median 24.92540
5 Maximum 25.31878
Std. Dev. 0.391938
2 Skewness 0.621798 4 Minimum 24.63597
Kurtosis 2.970729 Std. Dev. 0.184328
1 3 Skewness 0.593075
Jarque-Bera 2.321082 Kurtosis 2.951493
Probability 0.313317 2
0
1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 1 Jarque-Bera 2.113956
Probability 0.347504
0
24.6 24.8 25.0 25.2

Figure 1. Descriptive Statistics of the Variable Y

Figure 5. Descriptive Statistics of the Variable X4

395
 9
As is shown in Table 1, X1 has negative correlation with
8
Series: X5 X2 and X3; net assets per share as well as after-tax profit per
Sample 1 36
7 Observations 36 share has inverse relationship with the scale of equity; X4
6 Mean 8.034037
has reverse change relations with X5.
Median 7.914289
5 Maximum 8.621968 Regression calculation:
4 Minimum 7.468753
Std. Dev. 0.373148 First apply regression calculation on the basis of the
3 Skewness 0.281200 equation with constant terms. The P value of the constant
2
Kurtosis 1.928902
term c is as high as 0.7534. Then apply regression
1 Jarque-Bera 2.195315 calculation on the basis of the equation without constant
Probability 0.333652
0 terms, the results are shown in Table 2.
7.4 7.6 7.8 8.0 8.2 8.4 8.6 REGRESSION RESULTS
Dependent Variable: Y
Figure 6. Descriptive Statistics of the Variable X
Method: Least Squares

According to the results of the descriptive statistics, the Date: 07/24/09 Time: 08:26

Jarque-Bera statistics of each variable is above 0.05, Sample: 1 36

indicating a normal distribution of the values of all Included observations: 36
variables. Variable Coefficient Std. Error t-Statistic Prob.
The residuals of the model and the fitting effect of the X1 -0.042452 0.032293 -1.314577 0.0483
calculation results are shown in Figure 7.
X2 0.642151 0.199202 3.223617 0.0030
2.8
X3 0.041182 0.086116 0.478211 0.0359
2.4 X4 -0.195276 0.043315 -4.508253 0.0001

2.0 X5 0.867159 0.108012 8.028390 0.0000

1.6 R-squared 0.802860 Mean dependent var 1.749181

.6 Adjusted R-
1.2
.4 squared 0.777423 S.D. dependent var 0.391938
0.8
.2 S.E. of
regression 0.184909 Akaike info criterion -0.409663
.0
Sum squared
-.2
resid 1.059928 Schwarz criterion -0.189730
-.4 Log likelihood 12.37394 Durbin-Watson stat 1. 903717
5 10 15 20 25 30 35

Resi dual Actual Fitted

III. THE INTERPRETATION OF THE RESULTS OF EMPIRICAL
Figure 7. Figure of Residuals and Fitting Effect ANALYSIS

Figure 7 indicates a moderate fitting effect of the model. Adjusted R2 of this model is 0.77742, indicating a
Correlation analysis: stronger interpretability of the model for the relationship
among total equity, net asset per share, after-tax profits per
TABLE I. CORRLATION ANALYSIS share, GDP, market index and closing price. It also shows
that the overall fitting of the model is good (as is shown in
X1 X2 X3 X4 X5 Y
Figure 7). The P values of X1, X2, X3, X4 , and X5 are all
X1 1.00000
lower than 0.05; and the significance level of each variable
-
is relatively high, showing that the relevant factors selected
0.62370**
X2 0.00000 1.00000
in this study is reasonable. The value of Durbin-Watson is
-
1.90371, indicating the strong correlation between the
0.45723** 0.58201 variables. The regression results show that, the variables are
X3 0.00000 0.06801 1.00000 significant at the level of 1%; the coefficients of X2, X3, X5
-0.16807 0.26565 0.66057 1.00000 is positive. This is consistent with the prevailing view that
X4 0.61309 0.91235 0.05891 the net asset per share as well as after-tax profits per share
-0.03078 -0.19309 -0.53955 -0.32769 has a positive correlation with market index. The coefficient
X5 0.95109 0.88150 0.75641 0.0003 1.00000 of X1 is negative, indicating the negative correlation
- - - 0.76010 between equity and closing price. Therefore, investors
0.40677** 0.30337** 0.16850** 0.18287** 0.00000 making investments can refer to these four variables to
Y 0.00000 0.00000 0.00000 0.00000 1 predict changes in bank share prices so as to make a rational
Note: ** means significant effect at the level of 1%;* means significant effect at the level of 5%
decision-making. The coefficient of X4 is negative,

396
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mainly attributed to the influence of the sub-prime crisis on systemic factors affecting the prices decline of share prices”,
both real and virtual economy of China in the past two China Soft Science, vol.5, May.2004, pp.156 -158.
years. In addition, our country has been adopting prudent [9] Xiong Zhaoxin, Xiao Xin, “A Study on China’s
monetary policy; and thus the growth of banking business bank share prices”, The Accounting Review, vol.7,
has slowed down. At the same time, China's GDP increased Jul.2008, pp.87 -88.
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[10] Liu Guisheng,“The influence of Fair-value on the
actively expanding domestic demand. Therefore, there is a
financial volatility of China's banks”, Western Financial,
negative correlation between the two. vol.1, Jan.2009, pp.3 - 6.
IV. CONCLUSION
The research object of this article is the closing prices of
bank shares at the end of a quarter. By constructing the
relevant test model, the correlation of the closing prices with
total equity, net asset per share, after-tax profits per share,
GDP and market index is verified. As the first empirical
study which carries out empirical analysis by incorporating
share prices of the bank sector and prices and multi-related
factors into the same model, the conclusion of this paper has
directive significance for the shareholders and investors.
However, net asset per share, after-tax profits per share, and
GDP etc. can only be analyzed on quarterly basis, and the
A-share listed bank shares have a short history in China.
Therefore, there are relatively few sample data in this paper,
which is also the limitation of this study.
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