Hedge funds are significant players in the U.S. capital markets, but differ from other market participants in important ways such their use of a wide range of complex trading strategies and instruments, leverage, opacity to outsiders, and their compensation structure. The traditional bulwark...

This paper examines the common factors that drive the returns of U.S. bank holding companies from 1997 to 2005. We compare a range of market models from a basic one-factor model to a nine-factor model that includes the standard Fama-French factors and additional factors thought to be...

This paper examines the evolution of risk in the U.S. financial sector using firm-level equity market data from 1975 to 2005. We find that over the past three decades, financial sector volatility has steadily increased, particularly from 1998 to 2002. Increased volatility, driven by common...

The U.S. banking industry is experiencing a renewed focus on retail banking, a trend often attributed to the stability and profitability of retail activities. This paper examines the impact of banks' retail intensity on performance from 1997 to 2004 by developing three complementary definitions...

The U.S. banking industry is steadily increasing its reliance on nontraditional activities that generate fee income, trading revenue, and other types of noninterest income. This paper assesses potential diversification benefits from this shift. At the aggregate level, declining volatility of net...

As the U.S. banking industry continuously evolves, changes in industry composition have a direct impact on the aggregate performance of the industry. This paper presents a new decomposition framework for commercial banks and shows that both firm-level changes and dynamic reallocation effects -...

As the banking business grows more complex, government supervisors of banks seem increasingly willing to share the role of policing bank risk with private investors, especially bondholders. This paper investigates the disciplinary role of markets using bond spreads, ratings, and bank portfolio...

The naming of eleven banks as quot;too big to fail (TBTF)quot; in 1984 led bond raters to raise their ratings on new bond issues of TBTF banks about a notch relative to those of other, unnamed banks. The relationship between bond spreads and ratings for the TBTF banks tended to flatten after...

This paper examines the link between diversification and risk-adjusted performance for small, community banks. The results show diversification benefits within broad activity classes, but not between them. Specific business lines are linked with very different ex post outcomes, however, so the...

The U.S. banking industry is experiencing a renewed interest in retail banking, broadly defined as the range of products and services provided to consumers and small businesses. This article documents the return to retail in the U.S. banking industry and offers some insight into why the shift...