In the second draft of a research paper titled Asset pricing with a bank risk factor, two Bank of Portugal researchers, João Pedro Pereira and António Rua study how the state of the banking sector influences stock returns of non-financial firms.

"We consider a two-factor pricing model, where the first factor is the traditional market excess return and the second factor is the change in the average distance to default of the banking sector," write the researchers.

The paper finds that this bank