Book to Market and Size as Determinants of Stock Returns of Banks: An Empirical Investigation from MENA Countries

The aim of this study is to examine empirically the determinants of stock returns of banks in the MENA countries. Methodologically, we use the capital asset pricing model (CAPM) and the three-factor model of Fama and French (1993) for a sample of 30 banks during the period from March 31, 2004 to March 18, 2014. From the empirical findings, we can show that the firms with big size and with high book to market (BH) produce higher average stock returns than big firms during all periods of study (before the crisis, during the financial crisis of 2007 and after the financial crisis). In addition, we find that the size, the book to market and the market risk premium have very strong importance to explain the volatility of the expected returns. The results show, also, that the market risk (Mkt) has a positive impact on market profitability of banks except for the SM and BH portfolios in the case of the CAPM and Fama and French models. The risk associated with the size (SMB) has a positive impact on small banks and a negative impact on banks with big sizes. Finally, the risk related to the market value (HML) has a positive impact on small and large banks.