Does bank capitalization matter for bank stock returns?

We examine US bank capitalization and its association with bank stock returns, and find that the book- and market-based capital ratios show different patterns. Fama-MacBeth regressions and portfolio analyses suggest that banks' market-based capital ratios are negatively associated with banks' stock returns during the (tranquil) 1994-2007 period while book-based capital ratios are positively associated with banks' stock returns during the (turbulent) 2008-2014 period. These results suggest that the effect of bank capitalization on bank stock returns depends on the capital measure used and the period considered.