Applied Economics · 1993 · 47 citations · 9 references
BusinessBusiness EconomicsFinanceBankingFinancial EconomicsRisk AnalysisBank Risk ManagementFinancial RiskMarket RiskRisk MeasurementRisk ModelingRisk-return AnalysisBank Performance MeasurementMarket Risk AssessmentMarket Risk EstimationMarket Risk ModelingRidge RegressionSystematic Risk Measurement
The study aimed to assess whether banks’ financial ratios could replicate market‑determined risk measures. The authors calculated beta and standard deviation for 59 banks from 1986 to 1990 and regressed each risk measure on the banks’ financial ratios using OLS and Ridge regression to test for linear relationships. The results showed that the financial ratios failed to significantly explain the variability in market risks, contradicting prior studies.
The primary objective of this study was to determine how successful the banks' financial ratios had been in reproducing the market-determined measures of risks. Two measures of market risk, systematic risk given by beta and total risk represented by the standard deviations, for 59 commercial banks over the period of January 1986 to September 1990 were calculated. Each risk measure was regressed (using both OLS and the Ridge regression methods) on the banks' financial ratios to determine the existence of a linear relationship. Findings of this study are somewhat contradictory to prior studies. The financial ratios failed to explain the variablity in market risks significantly.
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Portfolio Selection: Efficient Diversification of Investments
Alan Stuart, Harry M. Markowitz · OR · 1959 · 5.6K citations