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We combine the dynamic dividend-discount model with an accountingbased vector autoregression framework that allows for a decomposition of EU banks' stock returns to cash- ‡ow and expected return news components. The main …ndings are that while the bulk of the variability of EU banks' stock returns is due to cash ‡ow shocks, the expected return shocks are relatively more important for larger than for smaller banks. Moroever, variables used in the literature as cash- ‡ow proxies explain a higher share of the cash- ‡ow component of the total excess returns for smaller than for larger EU banks. This suggests that large banks could be more prone to market wide news and events -that in the literature are associated with the expected return news component -as opposed to the bank-speci…c news, typically assumed to be incorporated in the cash- ‡ow component.