The size anomaly in European financial stock returns

Sander Muns*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Large financial institutions in Europe earn significantly lower risk-adjusted returns than their smaller counterparts. This pattern is absent in other industries. We interpret this as evidence of the latent government guarantees that protect large European financial institutions from tail events. Panel regressions suggest that unconditional on distress, the expected guarantees increase with size, leverage, and the government debt-to-GDP ratio. These determinants can be associated with a higher likelihood of being involved in a systemic crisis and thus receiving more government guarantees.
Original languageEnglish
Pages (from-to)155-170
JournalInternational Finance
Volume22
Issue number2
DOIs
Publication statusPublished - Aug 2019

Keywords

  • RARE DISASTERS
  • BANK BAILOUTS
  • TOO-BIG
  • RISK
  • MOMENTUM
  • FAIL

Cite this

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abstract = "Large financial institutions in Europe earn significantly lower risk-adjusted returns than their smaller counterparts. This pattern is absent in other industries. We interpret this as evidence of the latent government guarantees that protect large European financial institutions from tail events. Panel regressions suggest that unconditional on distress, the expected guarantees increase with size, leverage, and the government debt-to-GDP ratio. These determinants can be associated with a higher likelihood of being involved in a systemic crisis and thus receiving more government guarantees.",
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The size anomaly in European financial stock returns. / Muns, Sander.

In: International Finance, Vol. 22, No. 2, 08.2019, p. 155-170.

Research output: Contribution to journalArticleScientificpeer-review

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N2 - Large financial institutions in Europe earn significantly lower risk-adjusted returns than their smaller counterparts. This pattern is absent in other industries. We interpret this as evidence of the latent government guarantees that protect large European financial institutions from tail events. Panel regressions suggest that unconditional on distress, the expected guarantees increase with size, leverage, and the government debt-to-GDP ratio. These determinants can be associated with a higher likelihood of being involved in a systemic crisis and thus receiving more government guarantees.

AB - Large financial institutions in Europe earn significantly lower risk-adjusted returns than their smaller counterparts. This pattern is absent in other industries. We interpret this as evidence of the latent government guarantees that protect large European financial institutions from tail events. Panel regressions suggest that unconditional on distress, the expected guarantees increase with size, leverage, and the government debt-to-GDP ratio. These determinants can be associated with a higher likelihood of being involved in a systemic crisis and thus receiving more government guarantees.

KW - RARE DISASTERS

KW - BANK BAILOUTS

KW - TOO-BIG

KW - RISK

KW - MOMENTUM

KW - FAIL

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