Review of Behavioral Economics > Vol 9 > Issue 3

European Banks’ Profitability and Sentimental Cycle

Dimitris Anastasiou, Department of Accounting and Finance, Athens University of Economics and Business, and Economic Research Division, Alpha Bank, Greece, anastasioud@aueb.gr , Stelios Giannoulakis, Department of Economics, Athens University of Economics and Business, Greece, stgiannoulak@aueb.gr , Andreas Koutoupis, Department of Accounting and Finance, University of Thessaly, Greece, andreas_koutoupis@yahoo.gr , Christos Tzomakas, Department of Accounting and Finance, Athens University of Economics and Business, Greece, tzomakask@aueb.gr , Leonidas G. Davidopoulos, Department of Accounting and Finance, University of Thessaly, Greece, leonidas_koz@hotmail.com
 
Suggested Citation
Dimitris Anastasiou, Stelios Giannoulakis, Andreas Koutoupis, Christos Tzomakas and Leonidas G. Davidopoulos (2022), "European Banks’ Profitability and Sentimental Cycle", Review of Behavioral Economics: Vol. 9: No. 3, pp 223-250. http://dx.doi.org/10.1561/105.00000157

Publication Date: 26 Sep 2022
© 2022 D. Anastasiou, S. Giannoulakis, A. Koutoupis, C. Tzomakas and L. G. Davidopoulos
 
Subjects
Behavioral finance,  Panel data,  Financial markets: Financial intermediation,  Financial markets: Anomalies and behavioral finance
 
Keywords
JEL Codes: G02, G2, G21, C23, C5
Banks profitabilityeconomic sentimentsentimental cycleexpectationspanel mixed frequency VAR
 

Share

Download article
In this article:
1. Introduction 
2. Review of related research 
3. Data, Variables, and Methodology 
4. Empirical Findings 
5. Concluding Remarks 
References 

Abstract

Utilizing bank-level data and a Mixed Frequency VAR approach, this study examines the effects of a shock at the economic sentiment on European banks’ profitability during the 1995–2019 period. We find that a greater shock in economic sentiment leads to a persistent and gradually amplified stimulation of banks’ profitability. Our findings extend previous evidence on the determinants of bank profitability and have important policy implications. First, macroprudential policymakers and regulators should design and implement a regulatory framework that has an especial focus on economic sentiment accompanied by the usual bank-specific or macroeconomic-specific fundamentals to facilitate the existence of higher profitability in the banking industry. Second, banks' management (Boards, Risk Committees, and executive management) should embrace a more forward-looking philosophy and implement sentiment indicators to their strategy to achieve sustainability.

DOI:10.1561/105.00000157