NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Size Anomalies in U.S. Bank Stock Returns: A Fiscal Explanation

Priyank Gandhi, Hanno Lustig

NBER Working Paper No. 16553
Issued in November 2010, Revised in November 2014
NBER Program(s):Asset Pricing, Corporate Finance, Public Economics

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.

download in pdf format
   (708 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16553

Published: Size Anomalies in U.S. Bank Stock Returns PRIYANK GANDHI andHANNO LUSTIG† Article first published online: 12 MAR 2015 DOI: 10.1111/jofi.12235 © 2015 the American Finance Association Issue The Journal of Finance The Journal of Finance Volume 70, Issue 2, pages 733–768, April 2015

Users who downloaded this paper also downloaded* these:
Kelly, Lustig, and Van Nieuwerburgh w17149 Too-Systemic-To-Fail: What Option Markets Imply About Sector-wide Government Guarantees
Glover and Richards-Shubik w20567 Contagion in the European Sovereign Debt Crisis
Kalemli-Ozcan, Kamil, and Villegas-Sanchez w16528 What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?
Ito and Mishkin w10878 Two Decades of Japanese Monetary Policy and the Deflation Problem
Beltratti and Stulz w15180 Why Did Some Banks Perform Better During the Credit Crisis? A Cross-Country Study of the Impact of Governance and Regulation
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us