Does relative valuation work for banks?
| Autor: | Gianfranco Gianfrate, Emanuele Rossi, Gianfranco Forte |
|---|---|
| Přispěvatelé: | Forte, G, Gianfrate, G, Rossi, E |
| Jazyk: | angličtina |
| Rok vydání: | 2020 |
| Předmět: |
Relative valuation
Economics and Econometrics Investment strategy Investment banking Bank Valuation errors 0502 economics and business Econometrics Economics Equity valuation Multiple Valuation (finance) 040101 forestry 050208 finance business.industry SECS-P/09 - FINANZA AZIENDALE 05 social sciences 04 agricultural and veterinary sciences Banking multiple SECS-P/11 - ECONOMIA DEGLI INTERMEDIARI FINANZIARI Retail banking 0401 agriculture forestry and fisheries Portfolio business Book value Finance |
| Popis: | We study the distribution and properties of valuation errors yielded by banking industry multiples for European and U.S. banks. The results highlight that stock-market multiples are best suited for U.S. institutions, and that a two-year-forward P/E is the most precise metric. Contrary to practitioner beliefs, P/tangible book value is less meaningful than P/BV. Multiples are less accurate for small commercial banks than for large ones, and for investment banks than for retail banks. We investigate whether large positive errors lead to one-year positive price performances and negative errors to negative price changes, and find that the forward P/E loses its predictive ability in comparison with historical multiples. Testing three investment strategies, we find that bank multiples can be profitably used in portfolio choices. |
| Databáze: | OpenAIRE |
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