Top Performing Banks: Size Effect and Economic Cycles

Abstract

In this study, the authors investigate ex-post, long-term, riskadjusted performance associated with the release of the 2002 and 2005 ABA Top Performing Banks survey as well as an alternative “re-ranked” sample list that includes a size criterion. The 2002 and 2005 survey years serve as benchmarks for the resiliency of sample firms based on pivotal economic shifts within the banking industry taking place in the corresponding post-survey periods. The results indicate that the long-term stock return performance of the survey sample outperforms both the S&P 500 Index and the matched sample in “good” years and either underperforms or shows no difference in performance during “bad” years. The alternative re-ranked sample exhibits superior long-term stock return performance in both good and bad economic times when measured against the S&P 500. The authors conclude that size does impact performance resiliency based on changing economic conditions in the banking industry.

TOPICS: Analysis of individual factors/risk premia, equity portfolio management, long-term/retirement investing