Do Strict Capital Requirements Raise the Cost of Capital?
Bank Regulation, Capital Structure, and the Low Risk Anomaly
By MALCOLM BAKER AND JEFFREY WURGLER

Data Readme File

There are two empirical analysis in the paper in Figure 1 and Figure 2. 

The sample includes 486 months of portfolio returns from July 1971 to December 2011. The points are excess portfolio 
returns relative to CAPM or Fama-French three-factor model predictions. The six portfolios for each model are equal- 
and capitalization-weighted versions of the top three, middle four, and bottom three deciles according to 
pre-ranking beta. The relevant data are:

yrmo - year * 100 + month 
sortvar - grouping according to pre-ranking beta, computed using 24 to 60 months of data from CRSP
exret - excess return in yrmo
mkt - contemporaneous market factor return from Ken French's data library
smb - contemporaneous SMB factor return from Ken French's data library
hml - contemporaneous HML factor return from Ken French's data library
firmcount - number of observations in each beta grouping for each month

STATA CODE: 

by sortvar: reg exret mkt 
by sortvar: reg exret mkt smb hml


The sample includes 74,105 bank-months of data from March 1996 to February 2011. We have information on forward betas 
for 59.316 bank-months. The dependent variable is forward beta, computed by regressing a minimum of 24 months and a 
maximum of 60 months of future holding period returns on the corresponding bank’s CRSP value-weighted market returns, 
both in excess of the riskless rate. The independent variable is the ratio of total risk-based capital to Tier 1 
capital. The local polynomial regressions use a Epanechnikov kernel with 20 bins and smoothing interval of 0.1.

permno - CRSP firm identifier
ncomnam - CRSP company name
yrmo - year * 100 + month 
beta_f - forward beta, computed using 24 to 60 months of data after yrmo from CRSP
inv_t1_ra_ratio - inverse capital ratio from Fed Call Reports

STATA CODE: 

locpoly beta_f inv_t1_ra_ratio, adoonly noscatter width(0.1) n(20) generate(mvar gridvar)