Using supervisory data from large U.S. bank holding companies (BHCs), we find that BHCs incur more operational losses in adverse macroeconomic conditions driven significantly by the higher frequency and severity of tail events. Among different operational risk types, we find that losses from BHCs' failure to meet obligations to clients or from the design of their products are particularly countercyclical. We also show that larger and more leveraged BHCs have a higher macroeconomic sensitivity of operational risk. Overall, our findings provide new evidence regarding U.S. banking organizations' exposure to macroeconomic shocks with implications for risk management practices and supervisory policy.

We investigate time variation in Captial Asset Pricing Model (CAPM) betas for Book-to-Market (B/M) and momentum portfolios across stock market volatility regimes. For our analysis, we jointly model market and portfolio returns using a two-state Markov-switching process, with beta and the market risk premium allowed to vary between 'low' and 'high' volatility regimes. Our empirical findings suggest strong evidence of time variation in betas across volatility regimes in almost all the cases for which the unconditional CAPM can be rejected. Although the regime-switching conditional CAPM can still be rejected in many cases, the time-varying betas help explain portfolio returns much better than the unconditional CAPM, especially when market volatility is high.conditional CAPM, Markov-switching model, book-to-market, momentum,

No abstract

No abstract

No abstract