The Impact of the Eurozone Crisis on European Banks Stocks Contagion or Interdependence?

Abstract

This paper analyzes the influence of successive crises, including the recent European sovereign debt crisis, on banks' equity returns from 11 countries. Our data span the period December 14 th 2007-March 8 th 2013 that encompasses different episodes of economic and financial turmoil since the collapse of the subprime credit market. Our contribution to the literature is twofold. First, we use an explicit multifactor model of equity returns extended with a sovereign risk factor. Second, we adopt a Smooth Transition Regression (STR) framework that allows for an endogenous definition of crisis periods and captures the changes in parameters associated with shift contagion. We find that contagion from the European sovereign debt crisis to banks' equity returns has been confined to European banks, as U.S. banks' equity returns were unharmed by its direct impact and may even have benefited from a kind of flight to quality effect. Besides, across banks from the euro area, German financial institutions have not been completely spared by the Eurozone debt crisis, though they have been relatively less affected.

Determinants of the Level of Non-Performing Loans in Commercial Banks of Transition Countries

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Exchange Rate Volatility and Export Volume: The Case of Indonesia and its Main Trading Partners

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Implementation the International Financial Reporting Standards as a Moderating Variable of the Relationship of Corporate Governance with Earnings Management

“…This is resulting sense of skeptical of investor to perform investment named liquidity risk. Scott (2012), Kothari and Lester (2012), Khan (2010), Allegret et al (2016), Thalassinos et al (2010Thalassinos et al ( ), (2013Thalassinos et al ( ), (2014Thalassinos et al ( ), (2015, Boldeanu and Tache (2016), Fetai (2015) and Glavina (2015) state that the liquidity risk leads to market value lower than book value. According to Scott (2012) and Politis (2011) and(2012), the impact of using normal value when the liquidity is low the market price constitute main issue of normal values failure.…”