TY - JOUR
T1 - Bank stocks, risk factors, and tail behavior
AU - Yang, Huan
AU - Cai, Jun
AU - Huang, Lin
AU - Marcus, Alan J.
PY - 2021/9
Y1 - 2021/9
N2 - We examine how the tail behavior of risk factors affects the tail behavior of individual bank stock returns in the United States. Using 26 common risk factors, we construct univariate and multivariate conditional exceedance measures. We find that returns on banking industry, security-trading industry, and broad market portfolios have the largest impact on the probability of observing high positive tail returns on bank stocks. A small-minus-big bank return factor, market volatility, and a profitability risk factor have the largest impacts on the probability of lower tail returns. Bank capital ratios and total allowances for loan losses are notably related to tail risk.
AB - We examine how the tail behavior of risk factors affects the tail behavior of individual bank stock returns in the United States. Using 26 common risk factors, we construct univariate and multivariate conditional exceedance measures. We find that returns on banking industry, security-trading industry, and broad market portfolios have the largest impact on the probability of observing high positive tail returns on bank stocks. A small-minus-big bank return factor, market volatility, and a profitability risk factor have the largest impacts on the probability of lower tail returns. Bank capital ratios and total allowances for loan losses are notably related to tail risk.
KW - Bank stocks
KW - Loan loss provisions
KW - Risk factors
KW - Upper and lower tail risks
UR - http://www.scopus.com/inward/record.url?scp=85111041191&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-85111041191&origin=recordpage
U2 - 10.1016/j.jempfin.2021.07.007
DO - 10.1016/j.jempfin.2021.07.007
M3 - 21_Publication in refereed journal
VL - 63
SP - 203
EP - 229
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
SN - 0927-5398
ER -