Is bailout insurance and tail risk priced in bank equities?

L. Del Viva*, Eero Kasanen, Anthony Saunders, Lenos Trigeorgis

*Autor correspondiente de este trabajo

Producción científica: Artículo en revista indizadaArtículorevisión exhaustiva

1 Cita (Scopus)

Resumen

We present a pricing model of bank bailout insurance guarantees against tail risk and empirical evidence that provides a rational explanation why big bank equities “underperform” relative to small banks during normal times while they “overperform” during crises. A new measure accounting for left-tail risk protection against losses conditional on a crisis explains the “underperformance” of large banks during normal periods. Over the long-term spanning several economic cycles, bank assets are fairly priced regardless of size. Our empirical evidence supports our model's predicted pattern of excess bank return reversals across economic cycles following Too-Big-To-Fail (TBTF) bailout policy in 1984.

Idioma originalInglés
Número de artículo100909
PublicaciónJournal of Financial Stability
Volumen55
DOI
EstadoPublicada - ago 2021
Publicado de forma externa

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