STOCK-MARKET VALUATION OF GAINS AND LOSSES ON COMMERCIAL-BANKS INVESTMENT SECURITIES - AN EMPIRICAL-ANALYSIS

Prior studies document an insignificant effect of unrealized gains/los ses (URGL) and a negative effect of realized gains/losses (SGL) on ban k stock returns. We argue that these results may reflect the omission of changes in value of other net assets resulting from interest rate c hanges. We find that after controlling for effects of other (on-balanc e sheet) net assets, both URGL and SGL have significant positive effec ts on bank returns in normal periods. But the SGL effect is significan tly lower in periods of low capital and earnings. These findings are r elevant to the market value accounting debate.