Common factors and balance sheet structure of major European banks

Antonio Roma ()
Additional contact information
Antonio Roma: Università degli Studi di Siena, Dipartimento di Economia Politica, Siena (Italy) and London Business School, London (Great Britain)

BNL Quarterly Review, 2006, vol. 59, issue 237, 123-170

Abstract: This paper explores the relationship between listed European banks' fundamental characteristics and the riskiness of their stock returns. Banks' structural characteristics are measured through a number different balance sheet indicators which are then associated to the stock riskiness, as measured by the factor loadings on fundamentalfactors affecting the stock market at large. The results seem to indicate that, in the 1999-2002 period, in which the banks considered were traded in Euro, the factorloading against the market factor and against the default spread may be systematically related to banks' fundamental characteristics like asset quality indicators (especially reserves for bad loans over loans), to the composition of income (share of interest and commission revenue), and to a general indicator of bank efficiency such as the cost-income ratio. These results are broadly consistent with an option-based theory of bankvaluation, which would predict more variability in the price of bank stocks whenbanks hold riskier assets and economic conditions are poor.

Keywords: Bank; Stock Market (search for similar items in EconPapers)
JEL-codes: G10 G21 L25 M41 (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9865/9747 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:psl:bnlaqr:2006:21

Ordering information: This journal article can be ordered from
http://www.economiacivile.it

Access Statistics for this article

BNL Quarterly Review is currently edited by Alessandro Roncaglia

More articles in BNL Quarterly Review from Banca Nazionale del Lavoro
Bibliographic data for series maintained by Carlo D'Ippoliti ().