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

Priyank Gandhi and Hanno Lustig

No 16553, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G01 G12 (search for similar items in EconPapers)
Date: 2010-11
Note: AP CF PE
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Citations: View citations in EconPapers (16)

Published as 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

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