Is There a Banking Risk Premium in the US Stock Market?
25 Pages Posted: 18 Jul 2010
Date Written: July 18, 2010
This paper investigates whether there is a banking risk premium that helps explain the returns of US publicly listed firms. We assess this phenomenon in the context of the capital asset pricing model and the Fama and French three-factor model. We use bank size to create the banking factor – a mimicking portfolio that is long (short) big (small) banks. Our findings support a risk-based interpretation of the banking factor and that a banking risk premium is priced and systematic.
Keywords: Asset Pricing, Banking Risk Factor, Mimicking Portfolio, Bank Size
JEL Classification: G12, G21
Suggested Citation: Suggested Citation