TY  - JOUR
AU  - Gandhi,Priyank
AU  - Lustig,Hanno
TI  - Size Anomalies in U.S. Bank Stock Returns: A Fiscal Explanation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16553
PY  - 2010
Y2  - November 2010
UR  - http://www.nber.org/papers/w16553
L1  - http://www.nber.org/papers/w16553.pdf
N1  - Author contact info:
Priyank Gandhi
110 Westwood Plaza
Los Angeles, Ca 90095
E-Mail: gandhip@ucla.edu

Hanno Lustig
UCLA Anderson School of Management
110 Westwood Plaza, Suite C413
Los Angeles, CA 90095-1481
Tel: 310/825-1011
Fax: 310/825-9528
E-Mail: hlustig@anderson.ucla.edu
AB  - The largest commercial bank stocks, measured by book value, have significantly lower risk-adjusted returns than small- and medium-sized bank stocks, even though large banks are significantly more levered. We find a size factor in the component of bank returns that is orthogonal to the standard risk factors. This size factor, which has the right covariance with bank returns to explain the average risk-adjusted returns, measures size-dependent exposure in banks to bank-specific tail risk. The variation in exposure can be attributed to differences in the financial disaster recovery rates between small and large banks. A general equilibrium model with rare bank disasters can match these alphas in a sample without disasters provided that the difference in disaster recovery rates between the largest and smallest banks is 35 cents per dollar of dividends.
ER  -