Some specifics of the valuation of bank stocks
Some specifics of the valuation of bank stocks

Author(s): Jitka Veselá
Subject(s): Business Economy / Management, Evaluation research, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: stock; valuation; dividend discount model; excess return model; required rate of return;
Summary/Abstract: There are three main reasons that cause difficulties in the valuation of bank stocks. The first reason is the nature of the business activities of banks, in consequence of which it is hard to define debt and reinvestment, and therefore it is difficult to make an estimation of future cash flows and it is inappropriate to use valuation models with the weighted average cost of capital. The second reason is the fact that banks are strictly regulated and changes in the regulatory requirements and rules can significantly affect the stock value.

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