NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Priyank Gandhi

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Working Papers

November 2010Size Anomalies in U.S. Bank Stock Returns: A Fiscal Explanation
with Hanno Lustig: w16553
The largest commercial bank stocks, ranked by total size of the balance sheet, have significantly lower risk-adjusted returns than small- and medium-sized bank stocks, even though large banks are significantly more levered. We uncover a size factor in the component of bank returns that is orthogonal to the standard risk factors, including small-minus-big, which has the right covariance with bank returns to explain the average risk-adjusted returns. This factor measures size-dependent exposure to bank-specific tail risk. These findings are consistent with government guarantees that protect shareholders of large banks, but not small banks, in disaster states.

Size Anomalies in Bank Stock Returns (joint with Priyank Gandhi), forthcoming in Journal of Finance.

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