Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms
This paper decomposes both the market sensitivity and the interest-rate sensitivity of bank stock into on-balance-sheet and off-balance-sheet components. It derives these constituent and often-offsetting sensitivities from a nonstationary three-equation model that employs accounting and capital-market information to explain cross-sectional and temporal variation in the value of stockholder equity. To control statistically for heteroskedasticity and intrasample differences in unbooked capital positions, the model is estimated separately for three size classes of large U.S. banks. Parameter estimates confirm the importance of "hidden" or unbooked capital at these banks. For the nation's very largest banks, shifts in the value of these parameters are consistent with the view that the capitalized value of federal deposit-insurance guarantees burgeoned in the 1980s with interest volatility, demonstrations of regulatory forbearance, and relaxation of deposit-rate ceilings.
|Date of creation:||Aug 1988|
|Date of revision:|
|Publication status:||published as The Journal of Finance, Vol. XLV, No. 1, pp. 113-136, (March 1990).|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- James B. Thomson, 1986.
"The use of market information in pricing deposit insurance,"
8609, Federal Reserve Bank of Cleveland.
- Thomson, James B, 1987. "The Use of Market Information in Pricing Deposit Insurance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 528-37, November.
- 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.
- 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.
- Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-53, September.
- Buser, Stephen A & Chen, Andrew H & Kane, Edward J, 1981. "Federal Deposit Insurance, Regulatory Policy, and Optimal Bank Capital," Journal of Finance, American Finance Association, vol. 36(1), pages 51-60, March.
- 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, June.
- Newey, Whitney K., 1984. "A method of moments interpretation of sequential estimators," Economics Letters, Elsevier, vol. 14(2-3), pages 201-206.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2693. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.