The Financial Conglomerate Discount: Insights from Stock Return Skewness

27 Pages Posted: 15 Mar 2019

See all articles by Silvia Bressan

Silvia Bressan

Free University of Bozen-Bolzano - Faculty of Economics and Management

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: February 21, 2019

Abstract

Empirical evidence shows that diversified banks (i.e. financial conglomerates) trade at a discount compared to a matched portfolio of specialized stand-alone banks. While one strand of research explains this puzzle primarily with inefficiencies in the cash flow management, we analyze whether this evidence is due to expected returns which compensate investors for skewness exposure. Our empirical findings support this hypothesis. We implement different (co-)skewness measures proposed by the previous literature. We illustrate that diversified banks have asset returns with lower skewness, and, as a consequence of lower upside potential, investors demand for these stocks a higher discount or, vice versa, higher expected returns. Different robustness checks corroborate our main result.

Keywords: financial conglomerates, discount, expected returns, skewness

JEL Classification: G21, G32

Suggested Citation

Bressan, Silvia and Weissensteiner, Alex, The Financial Conglomerate Discount: Insights from Stock Return Skewness (February 21, 2019). Available at SSRN: https://ssrn.com/abstract=3339579 or http://dx.doi.org/10.2139/ssrn.3339579

Silvia Bressan (Contact Author)

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

Alex Weissensteiner

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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