Bank equity returns are more sensitive to systematic risk near cyclical troughs than they are near the top of the cycle. More specifically, the first column in Table 1 shows the estimates of the interaction terms between the variable depicting the cyclical phases and the three pricing factors. Negative coefficients indicate that bank stocks are more sensitive to the market and size factors in economic downturns. The result is most pronounced in the case of the size factor. The loading on size increases by 15 basis points when GDP growth deteriorates by moving down one quartile. Another way to.
