Behaviour of Bank Share Prices and Their Impact on National Stock Market Indices: Comparing Countries at Different Levels of Economic Development during Recessionary and Non-Recessionary Periods

The performance of banks and their effects on the global economy has been of interest to politicians, academicians, businesses and the general public especially in connection with the 2008/09 credit crisis. In particular, the extent to which the bank stock prices affected the national stock market indices in different countries before and during the crisis is unclear. It is also not clear whether the national stock markets of countries at different levels of economic development reacted differently to the crisis. This paper contributes to filling these gaps. It uses regression and correlation analytical techniques in the analysis of the impact and behaviour respectively. The results suggest that the behaviour of most of the stock market indices was similar regardless of the level of economic development. The mean stock market indices were statistically significantly higher before than during the credit crisis. Bank share prices were generally negatively correlated comparing the period before and during the crisis. Some countries were characterised by a few powerful banks that determined the course of the respective national stock market index. This has implications on policy and reveals the intervention points in regulating the performance of stock markets and stabilizing the financial sector.