Size Anomalies in U.S. Bank Stock Returns

Priyank Gandhi, Hanno Lustig

Research output: Contribution to journalArticlepeer-review

87 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)733-768
Number of pages36
JournalJournal of Finance
Issue number2
StatePublished - Apr 1 2015
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


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