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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