English, Article, Journal or magazine article edition: Bank Risk Strategies and Cyclical Variation in Bank Stock Returns L. BAELE; R. VANDER VENNET; A. VAN LANDSCHOOT

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Bookmark: http://trove.nla.gov.au/version/15274
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Bank Risk Strategies and Cyclical Variation in Bank Stock Returns
Author
  • L. BAELE
  • R. VANDER VENNET
  • A. VAN LANDSCHOOT
Physical Description
  • preprint
Notes
  • This paper investigates whether the stock returns of banks with different risk profiles exhibit different risk factor sensitivities over the business cycle. More specifically, we investigate whether or not high levels of capital adequacy or functional diversification provide banks with a structural hedge against a deterioration in the prevailing credit market conditions. Based on recent imperfect capital market theories, we develop a number of theoretical arguments for the existence of asymmetries in systematic risk across various types of banks. We use a regime-switching model to test the theoretical hypotheses empirically on a sample of European listed banks. We find that bank stock returns are strongly asymmetric; both the sensitivity to shocks and the conditional volatility are higher during business cycle troughs. Better capitalized and functionally diversified banks are perceived by investors as being better protected against a deterioration in credit market conditions compared to their relatively less capitalized and more specialized competitors.
  • RePEc:rug:rugwps:04/​217
Language
  • English
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