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Did the Financial Crisis affect the Market Valuation of Large Systemic U.S. Banks?

Author

Listed:
  • Georgios Bertsatos

    (Athens University of Economics and Business)

  • Plutarchos Sakellaris

    (Athens University of Economics and Business)

Abstract

We examine the impact of the financial crisis on the stock market valuation of large and systemic U.S. bank holding companies (BHCs).Using the Bertsatos and Sakellaris (2016) model of fundamental valuation of bank equity, we provide evidence that the financial crisis has not altered inve- stors’ attitudes towards bank characteristics. In particular, before, during, and after the crisis, investors in large and systemic U.S. BHCs seemed to penalize leverage, albeit temporarily. Both before and after the crisis, they reward size in the short run. This pattern is appearing only briefly during the crisis. We also show that bank opacity plays no role in market valuation either in the short run or in the long run. Last but not least, we find evidence that stress testing has been informative to the market and that those BHCs that failed at the post-crisis stress tests were not subsequently valued differently by the market.

Suggested Citation

  • Georgios Bertsatos & Plutarchos Sakellaris, 2017. "Did the Financial Crisis affect the Market Valuation of Large Systemic U.S. Banks?," Working Papers 201709, Athens University Of Economics and Business, Department of Economics.
    • Handle: RePEc:aeb:wpaper:201709:y:2017
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    Cited by:

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    5. Saunders, Anthony & Schmid, Markus & Walter, Ingo, 2020. "Strategic scope and bank performance," Journal of Financial Stability, Elsevier, vol. 46(C).
    6. Nguyen, James & Parsons, Richard & Argyle, Bronson, 2021. "An examination of diversification on bank profitability and insolvency risk in 28 financially liberalized markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    7. Ouyang, Fang-Yan & Zheng, Bo & Jiang, Xiong-Fei, 2019. "Dynamic fluctuations of cross-correlations in multi-time scale," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 517(C), pages 515-521.
    8. Antonio J. Dayag & Fernando Trinidad, 2019. "A Critical Assessment on Bank Valuation in Existing Literature in the Last Decade," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 8(4), pages 44-58, July.

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    More about this item

    Keywords

    Valuation; Systemic U.S. BHCs; Financial Crisis; Stress testing; Co-integration;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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