Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms
Hidden capital exists whenever the accounting measure of a firm's net worth diverges from its economic value. Such unbooked capital has on-balance-sheet and off-balance-sheet sources. This paper develops a model to estimate both forms of hidden capital and to test hypotheses about their determinants. In effect, the analysis expands the two-index model by endogenizing the market and interest-rate sensitivities of any stock and decomposing each sensitivity into on-balance-sheet and off-balance-sheet elements. For a sample of banks during 1975-85, the model finds considerable variation in both forms of hidden capital. Copyright 1990 by American Finance Association.
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Volume (Year): 45 (1990)
Issue (Month): 1 (March)
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- Newey, Whitney K., 1984. "A method of moments interpretation of sequential estimators," Economics Letters, Elsevier, vol. 14(2-3), pages 201-206.
- Lynge, Morgan J. & Zumwalt, J. Kenton, 1980. "An Empirical Study of the Interest Rate Sensitivity of Commercial Bank Returns: A Multi-Index Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(03), pages 731-742, September.
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- Brickley, James A. & James, Christopher M., 1986. "Access to deposit insurance, insolvency rules and the stock returns of financial institutions," Journal of Financial Economics, Elsevier, vol. 16(3), pages 345-371, July.
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- James B. Thomson, 1986. "The use of market information in pricing deposit insurance," Working Paper 8609, Federal Reserve Bank of Cleveland.
- Lloyd, William P. & Shick, Richard A., 1977. "A Test of Stone's Two-Index Model of Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(03), pages 363-376, September.
- George G. Kaufman, 1984. "Measuring and managing interest rate risk: A primer," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 16-29.
- Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, January. Full references (including those not matched with items on IDEAS)
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