Balance-sheet ratios and stock returns: An analysis for Italian banks
The paper assesses whether the monthly returns of the listed shares of Italian banks are predicted by changes in balance-sheet indicators. The sample covers the period from January 1997 to June 2003. Estimates use both unadjusted and risk-adjusted returns. Results show that the stock returns of Italian banks are positively related to past profitability, liquidity, and asset quality, while they are not significantly affected by banksï¿½ capital ratios. Furthermore, in the sample period an increase in traditional lending activity leads to higher stock returns.
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