Firms falling in the upper left-hand quadrant (with high
price-to-book ratios and low returns on equity) would be
overvalued, whereas those falling in the lower right-hand
quadrant(withlowreturnsonequityandhighprice-to-book
ratios) would be undervalued. Note that 65.32% of the
differences in price-to-book ratios across U.S. banks is
explainedbydifferencesinreturnsonequity.Theregression
line and the 95% confidenceintervals (represented by the
outside lines) indicate that no banks are undervalued or
overvaluedenoughtobeoutsidethisrange.Putanotherway,
onceweadjustfordifferencesinreturnsonequity,allofthe
banksin this samplelook fairly valuedona price-to-book
basis.
hop hipldf0av
(Hop HipldF0AV)
#1