In this special feature, we examine how expected equity returns vary across a sample of globally active banks and over time in 11 countries. We estimate the determinants of the rate of return on bank stocks using a standard equity pricing framework that decomposes share price risk into a systematic and an idiosyncratic component. The systematic component cannot be diversified away, and it is priced in the market in the sense of commanding higher expected returns. The opposite holds for the idiosyncratic component, which can be diversified away in sufficiently large portfolios and hence is not priced in the.
