The association between financial market volatility and banking market structure

Abstract We investigate whether banking market structure is associated with financial market volatility. A difficulty with achieving this task is the low frequency of the market structure data relative to the high frequency of volatility data. To overcome this problem, we employ a GARCH-MIDAS model that relates data with dissimilar frequencies. We employ both banking concentration and bank competition as measures of market structure. We find evidence that greater banking concentration is positively associated with higher volatility in the US stock, corporate bond, and Treasury markets, but no evidence of an association between banking competition and financial market volatility.