A Dynamic Model for Bank Valuation in Iran

In this paper, a model of the relative valuation of the price to book value with the PMG estimation method has been used to assess the value of banks and financial institutions in Iran between 2009:Q1 and 2017:Q4. The results demonstrate that the market price–to–book value ratio underreacts to changes in fundamental variables in the short-run. The correlation coefficient between the estimated price–to–book value ratio and its market value is moderate. Furthermore, the book value of equity of most banks in Iran converges to a negative value, which means price –to- book value ratio loses its power of interpretation.