| Abstract: | This study examines the correlation between market equity betas and accounting asset and equity betas in the commercial banking sector. A sample of banks was taken from the COMPUSTAT tapes and annual equity and asset accounting betas (calculated with various indices) were estimated over varying time periods. Cross-sectional correlations were then determined for individual banks and five-bank portfolios. The results indicate that the correlations are comparable to those found in other non-banking studies of accounting and market betas. A noticeable difference in our study was the sensitivity of the correlations to the length of the estimation interval for the betas. The longest estimation intervals (16–18 years) produce few significant correlations in our sample. These correlations were significantly lower than those obtained using fifteen or fewer years of data. Construction of portfolios generally increases all the correlations but the longer time period correlations are still significantly lower. The correlations are largely invariant, however, to the choice of index used in the estimation of the betas. |
