Measuring the Cost of Equity of Euro Area Banks

Altavilla, Carlo; Bochmann, Paul; Ryck, Jeroen De; Dumitru, Ana-Maria; Grodzicki, Maciej; Kick, Heinrich; Fernandes, Cecilia Melo; Mosthaf, Jonas; O'Donnell, Charles W; Palligkinis, Spyros

doi:10.2139/ssrn.3797125

Cited by 11 publications

(7 citation statements)

References 32 publications

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“…Moreover, the situation worsened with the deterioration of economic activity because of the COVID-19 pandemic (ECB 2021a), and the ROE for the 2nd quarter of 2021 was less than 4% for the EU member states (ECB 2021b). While improvements are projected, the expected EU banks' ROE of 6% by 2022 is still much lower than the estimated median required ROE, which is close to 10% (Altavilla et al 2021). Moreover, the expected ROE for the EU banks is low in comparison with large US banks, whose ROE is expected to reach about 12% by 2022 (ECB 2021a).…”

Section: Introductionmentioning

confidence: 93%

Productivity Change in the CEE Commercial Banks during a Period of Restricted Bank Regulation and Stable Economic Growth

Stubelj,

Trunk,

Švagan

et al. 2023

Economies

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The paper studies the productivity change of the commercial banks in the CEE countries over the post-crisis period 2013–2018. The productivity change is measured by the Malmquist Productivity Index and its sub-components, applying two approaches—the asset-oriented and profit-oriented intermediation approaches. The analysis uses data from a balanced panel of 181 commercial banks in 11 CEE countries. We find that commercial banks’ productivity, measured with the asset-oriented intermediation approach, decreased in most of the CEE countries over 2013–2018, with a decline ranging, on average, from 1% to 6.9%, driven mainly by a decline in technical efficiency. Nevertheless, estimates using the profit-intermediation approach point to productivity growth in commercial banks in all CEE countries, ranging, on average, from 0.5% to 6.3%. The empirical findings imply the need for the CEE commercial banks to further digital transformation and cost rationalization.

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Section: Introductionmentioning

confidence: 93%

Productivity Change in the CEE Commercial Banks during a Period of Restricted Bank Regulation and Stable Economic Growth

Stubelj,

Trunk,

Švagan

et al. 2023

Economies

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“…4 There is ample empirical evidence that the cost of bank equity is considerably higher than the cost of bank debt, see e.g. Altavilla, Bochmann, De Ryck, Dumitru, Grodzicki, Kick, Fernandes, Mosthaf, O'Donnell, and Palligkinis (2021). Our model assumption of a zero Modigliani-Miller off-set between equity and debt funding costs is conservative and will tend to make higher bank capital requirements costly for banks.…”

Section: Introductionmentioning

confidence: 94%

The State-Dependent Impact of Changes in Bank Capital Requirements

Lang,

Menno

2023

SSRN Journal

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“…Consequently, COE serves as a noteworthy measure not only for investors but also for regulatory and supervisory institutions. [15] explain that the CAPM-driven approach is popular among practitioners, especially investors, because there are no theoretically justified alternatives. However, in the empirical literature two decades ago, a consensus was established that the CAPM does not hold.…”

Section: Introductionmentioning

confidence: 99%

Estimating parameters of the CAPM under generalised asymmetric student-t distribution—The case of the Warsaw Stock Exchange sectoral indices

Pipień

2024

Financ. Stat. J.

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This paper analyses selected sub-indices listed on the Warsaw Stock Exchange (WSE) covering seven sectors: construction, IT, media, real estate, fuel, food, and telecommunications, from 3 January 2006 to 29 May 2020. We use daily, weekly, monthly, and quarterly data, resulting in 3600 daily, 751 weekly, 172 monthly, and 56 quarterly observations. The WIG index quotations were used to approximate the market portfolio and the Poland 10Y government bond yields for the risk-free rate. We have estimated the parameter β in CAPM regression using three different stochastic assumptions for the error term. The basic stochastic framework of the model utilises the generalised asymmetric student-t distribution (GAST). We have also estimated the parameter β based on the symmetric version of the GAST distribution and on the Gaussian one. These models can be treated as a special case of the basic framework. The estimates of the β parameter are influenced by the assumptions made about the error term. The data indicates that except for WIG-Paliwa, the Gaussian error term leads to larger β estimates than other non-Gaussian specifications. The inference about the shape parameters is not very certain, and the data does not strongly support the two-piece mechanism that enforces the asymmetry of the error term distribution. Furthermore, the estimates of the β parameter depend strongly on the frequency of the analysed series.

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Measuring the Cost of Equity of Euro Area Banks

Cited by 11 publications

References 32 publications

Productivity Change in the CEE Commercial Banks during a Period of Restricted Bank Regulation and Stable Economic Growth

Productivity Change in the CEE Commercial Banks during a Period of Restricted Bank Regulation and Stable Economic Growth

The State-Dependent Impact of Changes in Bank Capital Requirements

Estimating parameters of the CAPM under generalised asymmetric student-t distribution—The case of the Warsaw Stock Exchange sectoral indices

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