The Impact of Coronavirus Pandemic on the Stock Market Reaction in the Banking Sector. The Role or Regulatory and Supervisory Framework Across European Union Members

Abstract

The purpose of this paper is to assess the impact of COVID-19 outbreak upon the stock prices of the banking sector in the European Union evaluating the responses of banks from different jurisdictions with different regulatory policies and tax regimes. Using an event study technique, we examine the abnormal returns across a significant number of banks. The results show a broadly negative response of the investors to the COVID-19 pandemic official announcement. However, we found significant evidence of differences between banks form distinct jurisdictions. The investors have a stronger negative reaction for the banks from non-euro area, as well as for the banks from peripheral and semiperipheral countries. From a regulatory perspective, the investors have an enhanced adverse reaction for banks in jurisdictions where the activities restrictions and supervisory powers are lower, and where capital requirements are tighter.