Size Anomalies in U.S. Bank Stock Returns

51 Pages Posted: 5 Aug 2010 Last revised: 13 Nov 2014

See all articles by Priyank Gandhi

Priyank Gandhi

Rutgers Business School, Newark and New Brunswick

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: August 15, 2012

Abstract

The largest commercial bank stocks, ranked by the 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 the existence of government guarantees that protect shareholders of large banks, but not small banks, in disaster states.

Keywords: Banking Crisis, Banking, Government Bailout

Suggested Citation

Gandhi, Priyank and Lustig, Hanno N., Size Anomalies in U.S. Bank Stock Returns (August 15, 2012). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1653083 or http://dx.doi.org/10.2139/ssrn.1653083

Priyank Gandhi

Rutgers Business School, Newark and New Brunswick ( email )

111 Washington Avenue
Newark, NJ 07102
United States

Hanno N. Lustig (Contact Author)

Stanford Graduate School of Business ( email )

Stanford GSB
655 Knight Way
Stanford, CA California 94305-6072
United States
3108716532 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1,423
rank
12,328
Abstract Views
5,536
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information