Does diversification protect European banks’ market valuations in a pandemic?
- Author
- Mathieu Simoens (UGent) and Rudi Vander Vennet (UGent)
- Organization
- Project
- Abstract
- We use the Covid-19 pandemic to assess whether diversification in various dimensions can protect European banks from substantial negative valuation shocks. Our results demonstrate that functional diversification acts as an economically significant shock absorber: it mitigates banks' stock market decline by approximately 10 percentage points. Loan portfolio diversification also contributes to dampening the valuation shock, but with a much lower impact (4.4 percentage points). Geographical diversification fails to act as a shock absorber. Banks with lower pre-Covid systematic risk, higher liquidity buffers, higher cost efficiency and active in countries with better post-Covid growth prospects weathered the storm better.
- Keywords
- Finance, European banks, Covid-19, Valuation, Functional diversification, Geographical diversification, BUSINESS MODELS, PERFORMANCE
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Citation
Please use this url to cite or link to this publication: http://hdl.handle.net/1854/LU-8710342
- MLA
- Simoens, Mathieu, and Rudi Vander Vennet. “Does Diversification Protect European Banks’ Market Valuations in a Pandemic?” FINANCE RESEARCH LETTERS, vol. 44, 2022, doi:10.1016/j.frl.2021.102093.
- APA
- Simoens, M., & Vander Vennet, R. (2022). Does diversification protect European banks’ market valuations in a pandemic? FINANCE RESEARCH LETTERS, 44. https://doi.org/10.1016/j.frl.2021.102093
- Chicago author-date
- Simoens, Mathieu, and Rudi Vander Vennet. 2022. “Does Diversification Protect European Banks’ Market Valuations in a Pandemic?” FINANCE RESEARCH LETTERS 44. https://doi.org/10.1016/j.frl.2021.102093.
- Chicago author-date (all authors)
- Simoens, Mathieu, and Rudi Vander Vennet. 2022. “Does Diversification Protect European Banks’ Market Valuations in a Pandemic?” FINANCE RESEARCH LETTERS 44. doi:10.1016/j.frl.2021.102093.
- Vancouver
- 1.Simoens M, Vander Vennet R. Does diversification protect European banks’ market valuations in a pandemic? FINANCE RESEARCH LETTERS. 2022;44.
- IEEE
- [1]M. Simoens and R. Vander Vennet, “Does diversification protect European banks’ market valuations in a pandemic?,” FINANCE RESEARCH LETTERS, vol. 44, 2022.
@article{8710342,
abstract = {{We use the Covid-19 pandemic to assess whether diversification in various dimensions can protect European banks from substantial negative valuation shocks. Our results demonstrate that functional diversification acts as an economically significant shock absorber: it mitigates banks' stock market decline by approximately 10 percentage points. Loan portfolio diversification also contributes to dampening the valuation shock, but with a much lower impact (4.4 percentage points). Geographical diversification fails to act as a shock absorber. Banks with lower pre-Covid systematic risk, higher liquidity buffers, higher cost efficiency and active in countries with better post-Covid growth prospects weathered the storm better.}},
articleno = {{102093}},
author = {{Simoens, Mathieu and Vander Vennet, Rudi}},
issn = {{1544-6123}},
journal = {{FINANCE RESEARCH LETTERS}},
keywords = {{Finance,European banks,Covid-19,Valuation,Functional diversification,Geographical diversification,BUSINESS MODELS,PERFORMANCE}},
language = {{eng}},
pages = {{8}},
title = {{Does diversification protect European banks’ market valuations in a pandemic?}},
url = {{http://doi.org/10.1016/j.frl.2021.102093}},
volume = {{44}},
year = {{2022}},
}
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