Model uncertainty and systematic risk in US banking

L.T.M. Baele, Valerie De Bruyckere, O.G. De Jonghe, Rudi Vander Vennet

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Abstract

This paper uses Bayesian Model Averaging to examine the driving factors of equity returns of US Bank Holding Companies. BMA has as an advantage over OLS that it accounts for the considerable uncertainty about the correct set (model) of bank risk factors. We find that out of a broad set of 12 risk factors only the market, real estate, and high-minus-low Fama–French factors are reliably related to US bank stock returns over the period 1986–2010. Other factors are either only relevant over specific subperiods or for subsets of bank holding companies. We discuss the implications of our findings for empirical banking research.
Original languageEnglish
Pages (from-to)49-66
JournalJournal of Banking and Finance
Volume53
DOIs
Publication statusPublished - Apr 2015

Fingerprint

Model uncertainty
Systematic risk
Banking
Factors
Bank holding companies
Risk factors
Equity returns
Uncertainty
Bank risk
Stock returns
Bayesian model averaging
Real estate market

Keywords

  • Bayesian model average
  • bank risk
  • systematic risk
  • bank stock returns
  • bank supervision
  • fi…nancial stability

Cite this

Baele, L.T.M. ; De Bruyckere, Valerie ; De Jonghe, O.G. ; Vander Vennet, Rudi. / Model uncertainty and systematic risk in US banking. In: Journal of Banking and Finance. 2015 ; Vol. 53. pp. 49-66.
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Model uncertainty and systematic risk in US banking. / Baele, L.T.M.; De Bruyckere, Valerie; De Jonghe, O.G.; Vander Vennet, Rudi.

In: Journal of Banking and Finance, Vol. 53, 04.2015, p. 49-66.

Research output: Contribution to journalArticleScientificpeer-review

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