The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Size Anomalies in U.S. Bank Stock Returns
Published: 12/05/2014 | DOI: 10.1111/jofi.12235
PRIYANK GANDHI, HANNO LUSTIG
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.