A Market-Based Risk Classification of Financial Institutions

Alan C. Hess and Kirati Laisathit

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: This paper derives, estimates, and analyzes a multi-factor model of the monthly holding period returns on the stocks of exchange-traded financial institutions. In addition to bond and equity returns, the factors include default, liquidity, and term structure risk premiums plus variables that measure changes in deposit demand. To ensure that our sample has a large number of firms, we use data from January 1981 through December 1988. The equity return explains a large share of time-series variation in financial institutions' returns. The additional factors implied by banking theory have little incremental explanatory power. The two-factor model regression coefficients have considerable cross-sectional variation. This permits us to group banks into portfolios with similar risk exposures. These portfolios bear no relation to the SIC codes that group banks by their charters and lines of business.

This paper was presented at the Financial Institutions Center's October 1996 conference on "

Date: 1996-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://fic.wharton.upenn.edu/fic/papers/96/9637.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://fic.wharton.upenn.edu/fic/papers/96/9637.pdf [301 Moved Permanently]--> https://wifpr.wharton.upenn.edu/fic/papers/96/9637.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wop:pennin:96-37

Access Statistics for this paper

More papers in Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().