Size Anomalies in U.S. Bank Stock Returns: A Fiscal Explanation

The largest commercial bank stocks, measured by book value, have significantly lower risk-adjusted returns than small- and medium-sized bank stocks, even though large banks are significantly more levered. We find a size factor in the component of bank returns that is orthogonal to the standard risk factors. This size factor, which has the right covariance with bank returns to explain the average risk-adjusted returns, measures size-dependent exposure in banks to bank-specific tail risk. The variation in exposure can be attributed to differences in the financial disaster recovery rates between small and large banks. A general equilibrium model with rare bank disasters can match these alphas in a sample without disasters provided that the difference in disaster recovery rates between the largest and smallest banks is 35 cents per dollar of dividends.

Systemic Risks, Financial Intermediaries, and Asset Markets

The credit crisis of 2007-2009 has sparked an enormous interest in the role that financial intermediaries play in our economy. Recent literature examines how financial intermediaries affect not only macro-economic variables but also asset markets such as the stock and the bond markets. The underlying theme in this recent literature is that the function of financial intermediaries in our asset markets is not yet completely understood and requires further study. This dissertation is based on three chapters that examine the interaction between systemic risks, financial intermediaries, and asset markets.The first chapter is titled 'Counterparty Credit Risk and the Credit Default Swap Market'. This chapter is a version of a forthcoming paper in the Journal of Financial Economics by the same title. This paper is coauthored with Navneet Arora and Francis Longstaff. Counterparty credit risk has become one of the highest-profile risks facing participants in financial markets. Despite this, relatively little is known about how counterparty credit risk is actually priced. In this chapter I examine this issue empirically. I find that counterpartycredit risk is priced in the CDS market. The magnitude of the effect, however, is vanishingly small and is consistent with a market structure in which participants require collateralization of swap liabilities by counterparties.The second chapter is titled 'Size Anomalies in U.S. Bank Stock Returns: A Fiscal Explanation'. This chapter is a version of a UCLA Anderson working paper. This paper is coauthored with Hanno Lustig. I show that the largest commercial bank stocks, measured by book value, have significantly lower risk-adjusted returns than small- and medium-sized bank stocks, even though large banks are significantly more levered. I find a size factor in the component of bank returns that is orthogonal to the standard risk factors. This size factor, which has the right covariance with bank returns to explain the average risk-adjusted returns, measures size-dependent exposure in banks to bank-specific tail risk. The variation in exposure can be attributed to differences in the financial disaster recovery rates between small and large banks. A general equilibrium model with rare bank disasters can match these alphas in a sample without disasters provided that the difference in disaster recovery rates between the largest and smallest banks is 35 cents per dollar of dividends.In the final chapter of this dissertation I document a new stylized fact regarding aggregate bank credit growth and the excess returns of bank stocks. I find that a 1% increase in bank credit growth rate implies that excess returns on bank stocks over the next one year are lower by nearly 3%. Unlike most other forecasting relationships, credit growth tracks bank stock returns over the business cycle and explains nearly 14% of the variation in bank stock returns over a 1-year horizon. I show that this predictive variation in returns reflects the representative agent's rational response to a small time-varying probability of a tail event that impacts banks and bank-dependent firms. Consistent with this hypothesis I show that the predictive power, as measured by the absolute magnitude of the coefficient on credit growth and the adjusted-R2 at the the 1-year horizon, depends systematically on variables that regulate exposure to tail risk. Historically, the probability of a tail event increases in arecession, therefore this mechanism also explains the observed correlation between variation in aggregate bank credit level and business conditions

Financial market misconduct and public enforcement : The case of Libor manipulation

What is the role of public enforcement in preventing widespread financial market miscon- duct? We study this question using the events surrounding the manipulation of the London Interbank Offer Rate (Libor). We find pervasive evidence consistent with banks misreporting Libor submissions to profit from Libor-related positions in the full sample 1999-2012. The evidence is initially stronger for banks incorporated outside the U.S., where enforcement is historically weaker, and it disappears in the aftermath of Libor investigations. Overall, our results suggest that improvements in public enforcement can be effective in deterring financial market misconduct.publishe

Incidence, Characteristics and Outcomes of Large Vessel Stroke in COVID-19 Cohort: An International Multicenter Study.

BACKGROUND: While there are reports of acute ischemic stroke (AIS) in coronavirus disease 2019 (COVID-19) patients, the overall incidence of AIS and clinical characteristics of large vessel occlusion (LVO) remain unclear. OBJECTIVE: To attempt to establish incidence of AIS in COVID-19 patients in an international cohort. METHODS: A cross-sectional retrospective, multicenter study of consecutive patients admitted with AIS and COVID-19 was undertaken from March 1 to May 1, 2020 at 12 stroke centers from 4 countries. Out of those 12 centers, 9 centers admitted all types of strokes and data from those were used to calculate the incidence rate of AIS. Three centers exclusively transferred LVO stroke (LVOs) patients and were excluded only for the purposes of calculating the incidence of AIS. Detailed data were collected on consecutive LVOs in hospitalized patients who underwent mechanical thrombectomy (MT) across all 12 centers. RESULTS: Out of 6698 COVID-19 patients admitted to 9 stroke centers, the incidence of stroke was found to be 1.3% (interquartile range [IQR] 0.75%-1.7%). The median age of LVOs patients was 51 yr (IQR 50-75 yr), and in the US centers, African Americans comprised 28% of patients. Out of 66 LVOs, 10 patients (16%) were less than 50 yr of age. Among the LVOs eligible for MT, the average time from symptom onset to presentation was 558 min (IQR 82-695 min). A total of 21 (50%) patients were either discharged to home or discharged to acute rehabilitation facilities. CONCLUSION: LVO was predominant in patients with AIS and COVID-19 across 2 continents, occurring at a significantly younger age and affecting African Americans disproportionately in the USA

Body Mass Index and Overall Outcome Following Subarachnoid Hemorrhage: An Obesity Paradox?

BACKGROUND: Conventional understanding of obesity demonstrates negative consequences for overall health, whereas more modern studies have found that it can provide certain advantages. The current literature on the effect of body mass index (BMI) in subarachnoid hemorrhage (SAH) is similarly inconsistent. METHODS: cohort of 406 patients with SAH were retrospectively reviewed and stratified into 3 BMI categories: normal weight, 18.5-24.9 kg/m RESULTS: Statistical differences were evident for all outcome categories. A categorical analysis of the different groups revealed that compared with the normal weight group, the overweight group had an odds ratio (OR) for mortality of 0.415 (P = 0.023), an OR for poor mRS score at 90 days of 0.432 (P = 0.014), and an OR for poor mRS score at 180 days of 0.311 (P = 0.001), and the obese group had statistically significant ORs for poor mRS score at 90 days of 2.067 (P = 0.041) and at 180 days of 1.947 (P = 0.049). These significant ORs persisted in a multivariable model controlling for age and Hunt and Hess grade. CONCLUSIONS: The overweight group exhibited strikingly lower odds of death and poor outcome compared with the normal weight group, whereas the obese group demonstrated the opposite. These associations persisted in a multivariable model; thus, BMI can be considered an important predictor of outcome after SAH

The Obestiy Paradox: The Protective Effect of Obesity on Right Ventricular Function Using Echocardiographic Strain Imaging in Patients With Pulmonary Hypertension

BACKGROUND: Obesity is associated withright ventricular (RV) dysfunction, but its effect on RV remodeling in patients with pulmonary hypertension(PHTN) has not been studied. We evaluated the effect of obesity, and its interplay with diabetes, in patients with PHTN using RV echocardiographic strain imaging. METHODS: 185 patients underwent echocardiographic imaging and pulmonary artery pressure was calculated using tricuspid regurgitation jet velocity. From focused RV apical-four-chamber view, global and mid peak systolic RV free wall longitudinal strain (FWLS) wascalculated using speckle-tracking software. RESULTS: Global and mid RV FWLS in patients with PHTN (n=84) was lower (-16.8+/-7 vs -18.9+/-6.3, P=0.035 & -11.2+/-12.8 vs -18.9+/-9.2, P=0.002 respectively) compared with patients without PHTN (n=101). Among patients without PHTN, obese patients (BMI \u3e30) had lower global and mid RV FWLS (-17.2+/-6.2 vs -20.3+/-5.7, P=0.012 & -17.6+/-7.2 vs -21.9+/-7.3, P=0.004), even after excluding diabetic patients (Mid RV FWLS -18.2+/-6.8 vs -22.1+/-8, P=0.032). Among patients with PHTN, obese patients had similar RV FWLS compared with non-obese patients (P=0.46). However, on excluding diabetic patients from PHTN group, obese patients with PHTN had higher global and mid RV FWLS (-21.7+/-5.7 vs -16.1+/-8, P=0.017 & -23.8+/-4.8 vs -17+/-9.4, P=0.009 respectively) compared to non-obese patients which suggests a protective effect of obesity on RV function in patients with PHTN. CONCLUSIONS: Obesity is associated with subclinical RV dysfunction as assessed by RV strain imaging, but paradoxically it may confer a protective effect on RV function once the patient develops PHTN. Future studies should evaluate the clinical impact of this paradox