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Does bank capitalization matter for bank stock returns? |
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| Institution: | 1. University of Rome Tor Vergata, Department of Economics and Finance, Via Columbia 2, Rome, Italy;2. University of Roma Tre, Department of Business Studies, via Silvio D’Amico 77, Rome, Italy;3. Middlesex University, Business School, The Burroughs Hendon, London NW4 4BT, United Kingdom;4. Bangor University, Bangor Business School, College Road, LL572DG Bangor, United Kingdom;1. School of International Economics and Trade, Nanjing University of Finance and Economics, Nanjing, China;2. SHU-UTS SILC Business School, Shanghai University, 99 Shangda Road, Shanghai, China;3. UTS Business School, University of Technology Sydney, PO Box 123 Broadway, NSW 2007, Australia;4. School of Finance, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, 200433, China |
| Abstract: | We examine US bank capitalization and its association with bank stock returns, and find that the book- and market-based capital ratios show different patterns. Fama-MacBeth regressions and portfolio analyses suggest that banks’ market-based capital ratios are negatively associated with banks’ stock returns during the (tranquil) 1994–2007 period while book-based capital ratios are positively associated with banks’ stock returns during the (turbulent) 2008–2014 period. These results suggest that the effect of bank capitalization on bank stock returns depends on the capital measure used and the period considered. |
| Keywords: | Bank capitalization Bank stock returns Portfolio analysis Fama-MacBeth regression G12 G21 G28 |
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