We are especially grateful to the associate editor Ken Cyree and an anonymous referee whose comments and suggestions helped us improve the article. The views expressed are those of the authors. All remaining errors are their own responsibility.
LEARNING BANKS' EXPOSURE TO SYSTEMATIC RISK: EVIDENCE FROM THE FINANCIAL CRISIS OF 2008
Version of Record online: 13 MAR 2014
© 2014 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 37, Issue 1, pages 75–98, Spring 2014
How to Cite
Viale, A. M. and Madura, J. (2014), LEARNING BANKS' EXPOSURE TO SYSTEMATIC RISK: EVIDENCE FROM THE FINANCIAL CRISIS OF 2008. Journal of Financial Research, 37: 75–98. doi: 10.1111/jfir.12029
- Issue online: 13 MAR 2014
- Version of Record online: 13 MAR 2014
Using a two-state Markov regime-switching intertemporal capital asset pricing model, we find that the exposure to systematic risk of bank stocks varies with size and the state of the economy. Across large banks, those with higher net interest margins and lower capital ratios are the most exposed to unexpected shifts in the term structure of interest rates. Small banks with higher net interest rate margins and that rely less on noninterest income are the most exposed to unexpected shifts in the stance of monetary policy. We apply the asset pricing model out of sample to assess its ability to detect troubled banks during a financial crisis.