Abstract
Banks with higher equity risk and faster loan growth have lower abnormal stock returns. By disentangling ex ante cost of capital from cash flow and discount rate news in bank stock returns, we show that the lower returns do not suggest lower cost of capital. The underperformance of banks with higher equity risk is explained by the poorer cash flow news. The underperformance of banks with faster loan growth is due to both the cash flow and the discount rate news components. Overall, the evidence points to the nontrivial role of investors’ inefficient forecasts of expected bank risk and fundamentals.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
