Pitfalls in using market prices to assess the financial condition of depository institutions |
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| Authors: | James R. Barth Daniel E. Page R. Dan Brumbaugh Jr. |
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| Affiliation: | (1) Department of Finance, Auburn University, 36830 Auburn, AL, USA;(2) Auburn University, 36830 Auburn, AL, USA;(3) Cornerstone Research, 94025 Palo Alto, CA, USA |
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| Abstract: | In this article we examine the information that stock prices provide about the financial condition of federally insured thrift institutions. In order to assess their financial condition from the different perspectives of stockholders and the federal insurer, we calculate the value of the put option of federal deposit insurance available to thrift institutions. Our results demonstrate that the two perspectives often provide, particularly for unhealthy institutions, quite different views of the financial condition of individual institutions. |
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| Keywords: | federal deposit insurance thrift institutions put options |
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