NBER

Alberto Plazzi

University of Lugano and
Swiss Finance Institute
Via Buffi, 13
Lugano, 6904, Switzerland

E-Mail: alberto.plazzi@usi.ch
Institutional Affiliation: University of Lugano

NBER Working Papers and Publications

June 2016Equity is Cheap for Large Financial Institutions: The International Evidence
with Priyank Gandhi, Hanno Lustig: w22355
In most countries, equity is a cheap source of funding for a country’s largest financial institutions. On average, the stocks of the top 10% financial companies in a country account for over a quarter of total market capitalization, but these stocks earn returns that are significantly lower than stocks of non-financial firms of the same size and with the same risk exposures. In a bailout-augmented asset pricing model with rare disasters, country characteristics that inform the likelihood of a bailout should predict stock returns. We find greater financial pricing anomalies for the largest banks in developed countries with a highly concentrated and large banking sector and fiscally strong governments, but smaller anomalies in countries with strong corporate governance, government integrity,...

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