Authors: Martin Pažický
Addresses: Faculty of Management, Comenius University, Odbojárov 10, 820 05, Bratislava, Slovak Republic
Abstract: In this paper, an attempt is made to evaluate the return and risk profile of banks in Europe. 2016 wide stress test performed by the European Banking Authority (EBA) was focused on the banks from an accounting point of view. This paper examines the return and risk framework of European banks based on a stock market perspective. Stock return variance and beta factor from Markowitz portfolio theory were chosen as measures of risk. Rolling beta factors and simulated efficient frontiers, introduced by Markowitz, document in each period the evolution of risk and return position. Special attention is paid to defining the relation between risk and return using regression models. The consequences for returns of the business cycle stage and the region, where the banks are based, are examined by the linear regressions. The models investigate the impacts of unconventional monetary policy of the European Central Bank (ECB) represented by the asset purchase program (APP) on the stock return and risk of the selected banks.
Keywords: stress test; financial crisis; risk and return; beta factor; APP; asset purchase program.
International Journal of Financial Innovation in Banking, 2018 Vol.2 No.2, pp.99 - 127
Received: 09 Nov 2017
Accepted: 05 May 2018
Published online: 23 Dec 2018 *