Did the financial crisis affect the market valuation of large systemic U.S. banks?

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 investors’ 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

Extensions of the Pesaran, Shin and Smith (2001) bounds testing procedure

We replicate the Pesaran et al. (J Appl Economet 16(1):289–326, 2001) bounds testing procedure (BTP) and extend it with 6 new cases, 4 of which involve a quadratic trend. We provide critical values for the BTP of the lagged regressors in levels under the framework of unrestricted error-correction models (UECMs) to account for degenerate cases of co-integration. Further, we extend the BTP with 11 cases for the quantile UECMs of Cho et al. (J Econom 188(1):281–300, 2015) and present critical values for interdecile and interquartile BTPs for the unrestricted cases. Moreover, we extend the Shin et al. (Festschrift in Honor of Peter Schmidt, Springer, New York, 2014) methodology to account for nonlinear, or asymmetric, responses of the dependent variables to its covariates (NARDL) and for distributional, or location, asymmetry (QARDL of Cho et al. 2015) of the dependent variable. This is the quantile nonlinear ARDL, or QNARDL. We provide codes that generate critical values for different sample sizes of the BTPs. These critical values are utilized in an empirical application of a dynamic equity valuation model for the S&P Global Index. Misspecifying a nonlinear relationship as linear produces misleading results and policy implications. There is strong evidence of (1) trading activity based on fundamentals and (2) the existence of a stable equilibrium relationship for the price-to-book (PB) ratio of the market index and its fundamentals. During periods of high PB relative to its fundamental values, convergence to equilibrium is faster than during periods of relatively low PB. There is also evidence of momentum trading, i.e., of traders that rely on positive feedback

Δοκίμια στην αποτίμηση τραπεζών

The topic of this Ph.D. thesis is about equity valuation of banks. Specifically, we employ the Price-to-Book (PB) ratio of banks and it is defined as the ratio of market value of equity over the book value of equity. We find the determinants of the PB ratio according to fundamental valuation and we estimate that relationship with modern econometric tools. First, we derive the 3D model of Bertsatos and Sakellaris (2016, Economics Letters) for banks’ equity valuation. We focus on co-integration and error correction with the ARDL (autoregressive distributed lag) models. These models account for the estimation of both long-run and short-run coefficients. Next, we extend the 3D model in terms of empirical application, model specification and estimation techniques. Finally, we present a series of extensions of the famous bounds testing procedure of Pesaran, Shin and Smith (2001, Journal of Applied Econometrics) in both time-series and panels.Η παρούσα διδακτορική διατριβή αφορά την αποτίμηση της αξίας των τραπεζών μέσω των ιδίων κεφαλαίων τους. Συγκεκριμένα, χρησιμοποιείται ο δείκτης Price-to-Book (PB) των τραπεζών, ήτοι ο λόγος της αγοραίας αξίας των ιδίων κεφαλαίων προς την λογιστική αξίων των ιδίων κεφαλαίων. Αποπειράται η υποδειγματοποίηση του δείκτη ΡΒ βάσει της θεμελιώδους αποτίμησης της αξίας των επιχειρήσεων με σύγχρονα οικονομετρικά εργαλεία. Θεμελιώνεται το 3D υπόδειγμα αποτίμησης ιδίων κεφαλαίων των τραπεζών των Μπερτσάτου και Σακελλάρη (2016, Economics Letters). Δίδεται έμφαση στην έννοια της συνολοκλήρωσης και στα αυτοπαλίνδρομα υποδείγματα διόρθωσης σφάλματος, όπου εκτιμώνται τόσο οι μακροχρόνιοι όσο και οι βραχυχρόνιοι συντελεστές. Παράλληλα, επεκτείνεται το υπόδειγμα 3D τόσο ως προς το δείγμα εφαρμογής και την εξειδίκευσή του όσο ως και προς τις τεχνικές εκτίμησής του. Τέλος, παρουσιάζεται μία σειρά από επεκτάσεις της ευρέως χρησιμοποιούμενης τεχνικής στατιστικών ορίων ελέγχου των Pesaran, Shin and Smith (2001, Journal of Applied Econometrics) τόσο σε επίπεδο χρονοσειρών όσο και σε επίπεδο δεδομένων πάνελ