Year: 2010
Type: report
Abstract: 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.
DOI: 10.3386/w16553
Authors: Priyank Gandhi, Hanno Lustig
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1557556356