Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms

36 Pages Posted: 18 Jun 2004 Last revised: 15 Apr 2008

See all articles by Edward J. Kane

Edward J. Kane

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Haluk Unal

University of Maryland - Robert H. Smith School of Business

Date Written: August 1988

Abstract

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.

Suggested Citation

Kane, Edward J. and Unal, Haluk, Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms (August 1988). NBER Working Paper No. w2693. Available at SSRN: https://ssrn.com/abstract=227244

Edward J. Kane (Contact Author)

Boston College - Department of Finance ( email )

Fulton Hall
Chestnut Hill, MA 02467
United States
520-299-5066 (Phone)
617-552-0431 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Haluk Unal

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2256 (Phone)
301-405 0359 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
40
Abstract Views
988
PlumX Metrics