Exploring the effect of market risks on bank profitability: Evidence from Jordan

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This paper observes the dynamic impact of market risks on the profitability of banks listed on the Amman Stock Exchange (ASE) from 2010 to 2018 in Jordan. To identify the link, the relevant data were retrieved from the annual statements of Jordanian banks and one-step Generalized Method of Moments (GMM) approach was employed to diagnose the error regarding endogeneity. The results of the applied methodology showed that market risks impacted the profitability of Jordanian banks. Furthermore, the study also presented factors that affected the banks’ profitability, such as capitalization and bank size. The previous year profitability has a positive effect on the next year profitability. Moreover, stock market returns (SMRs) directly affect ROA and ROE because when SMRs enhances, bank profitability will increase. Bank managers should ponder the volatility of the market risk while enhancing the profitability of a bank. This relationship of the variables regarding Jordanian banks listed on the ASE was not considered before in the financial economics literature. Recommendations were also provided for Jordanian bank managers to mitigate market risks.

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    • Table 1. Descriptive statistics
    • Table 2. Regression analysis
    • Conceptualization
      Mahmoud Al-Rdaydeh, Basem Hamouri, Abdul Aziz Abdul Rahman, Abdelrhman Meero
    • Investigation
      Mahmoud Al-Rdaydeh, Basem Hamouri, Abdelrhman Meero, Mosab I. Tabash
    • Methodology
      Mahmoud Al-Rdaydeh, Mosab I. Tabash
    • Writing – original draft
      Mahmoud Al-Rdaydeh
    • Writing – review & editing
      Mahmoud Al-Rdaydeh, Abdelrhman Meero, Mosab I. Tabash
    • Resources
      Basem Hamouri, Abdul Aziz Abdul Rahman
    • Validation
      Basem Hamouri, Abdelrhman Meero
    • Project administration
      Abdul Aziz Abdul Rahman
    • Visualization
      Abdul Aziz Abdul Rahman