Theme: Capital Markets revenues and banks’ valuations

Capital markets revenues and banks’ valuations

The variance of capital markets earnings is often said to (1) heighten the volatility of the share price and/or (2) depress the market valuation.

For the banks included in this note, we find no evidence that the first assumption holds true …

… but we do identify a strong correlation between the capital markets revenue dynamics and valuations: banks with (relatively) stable revenues are rewarded with higher valuations.

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