Bank stocks, risk factors, and tail behavior

Huan Yang, Jun Cai, Lin Huang and Alan J. Marcus

Journal of Empirical Finance, 2021, vol. 63, issue C, 203-229

Abstract: 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.

Keywords: Bank stocks; Risk factors; Upper and lower tail risks; Loan loss provisions (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:63:y:2021:i:c:p:203-229

DOI: 10.1016/j.jempfin.2021.07.007

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