Common risk factors in bank stocks

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Title: Common risk factors in bank stocks
Author: Viale, Ariel Marcelo
Abstract: This dissertation provides evidence on the risk factors that are priced in bank equities . Alternative empirical models with precedent in the nonfinancial asset pricing literature are tested , including the single -factor Capital Asset Pricing Model (CAPM ) , three -factor Fama -French model , and Intertemporal Capital Asset Pricing Model (ICAPM ) . The empirical results indicate that an unconditional two -factor Intertemporal Capital Asset Pricing Model (ICAPM ) model , that includes the stock market excess return and shocks to the slope of the yield curve , is useful in explaining the cross -section of bank stock returns . I find no evidence , however , that firm specific factors , such as size and book -to -market ratios , are priced in bank stock returns . These results have a number of practical implications for event studies of banking firms , estimation of bank cost of capital and investment performance , as well as regulatory initiatives to utilize market discipline to evaluate bank risk under Basel II .
URI: http : / /hdl .handle .net /1969 .1 /5806
Date: 2007-09-17

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Common risk factors in bank stocks. Available electronically from http : / /hdl .handle .net /1969 .1 /5806 .

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