[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/ers/journl/vxixy2016i1p129-148.html
   My bibliography  Save this article

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

Author

Listed:
  • Jean-Pierre Allegret
  • Helene Raymond
  • Houda Rharrabti
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 14th 2007-March 8th 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.

Suggested Citation

  • Jean-Pierre Allegret & Helene Raymond & Houda Rharrabti, 2016. "The Impact of the Eurozone Crisis on European Banks Stocks Contagion or Interdependence?," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 129-148.
    • Handle: RePEc:ers:journl:v:xix:y:2016:i:1:p:129-148
    as

    Download full text from publisher

    File URL: http://www.ersj.eu/repec/ers/papers/16_1_p9.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ashoka Mody & Damiano Sandri, 2012. "The eurozone crisis: how banks and sovereigns came to be joined at the hip [‘A pyrrhic victory? Bank bailouts and sovereign credit risk’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(70), pages 199-230.
    2. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 119-136, Suppl. De.
    3. Caporin, Massimiliano & Pelizzon, Loriana & Ravazzolo, Francesco & Rigobon, Roberto, 2018. "Measuring sovereign contagion in Europe," Journal of Financial Stability, Elsevier, vol. 34(C), pages 150-181.
    4. Alter, Adrian & Schüler, Yves S., 2012. "Credit spread interdependencies of European states and banks during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3444-3468.
    5. Alter, Adrian & Beyer, Andreas, 2014. "The dynamics of spillover effects during the European sovereign debt turmoil," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 134-153.
    6. De Grauwe, Paul & Ji, Yuemei, 2014. "How much Fiscal Discipline in a Monetary Union?," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 348-360.
    7. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    8. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
    9. Ms. Hélène Poirson & Jochen M. Schmittmann, 2013. "Risk Exposures and Financial Spillovers in Tranquil and Crisis Times: Bank-Level Evidence," IMF Working Papers 2013/142, International Monetary Fund.
    10. De Bruyckere, Valerie & Gerhardt, Maria & Schepens, Glenn & Vander Vennet, Rudi, 2013. "Bank/sovereign risk spillovers in the European debt crisis," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4793-4809.
    11. Adrian Van Rixtel & Gabriele Gasperini, 2013. "Financial crises and bank funding: recent experience in the euro area," BIS Working Papers 406, Bank for International Settlements.
    12. Chan-Lau, Jorge A. & Liu, Estelle X. & Schmittmann, Jochen M., 2015. "Equity returns in the banking sector in the wake of the Great Recession and the European sovereign debt crisis," Journal of Financial Stability, Elsevier, vol. 16(C), pages 164-172.
    13. Bhanot, Karan & Burns, Natasha & Hunter, Delroy & Williams, Michael, 2014. "News spillovers from the Greek debt crisis: Impact on the Eurozone financial sector," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 51-63.
    14. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    15. Eichengreen, Barry & Mody, Ashoka & Nedeljkovic, Milan & Sarno, Lucio, 2012. "How the Subprime Crisis went global: Evidence from bank credit default swap spreads," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1299-1318.
    16. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    17. Grammatikos, Theoharry & Vermeulen, Robert, 2012. "Transmission of the financial and sovereign debt crises to the EMU: Stock prices, CDS spreads and exchange rates," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 517-533.
    18. Grammatikos, Theoharry & Vermeulen, Robert, 2012. "Transmission of the financial and sovereign debt crises to the EMU: Stock prices, CDS spreads and exchange rates," Journal of International Money and Finance, Elsevier, vol. 31(3), pages 517-533.
    19. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    20. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    21. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    22. Kok, Christoffer & Gross, Marco, 2013. "Measuring contagion potential among sovereigns and banks using a mixed-cross-section GVAR," Working Paper Series 1570, European Central Bank.
    23. Caruana, J. & Avdjiev, S., 2012. "Sovereign creditworthiness and financial stability:an international perspective," Financial Stability Review, Banque de France, issue 16, pages 71-85, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jean-Pierre Allegret & Hélène Raymond & Houda Rharrabti, 2014. "The impact of the global and eurozone crises on European banks stocks Some evidence of shift contagion," Working Papers hal-04141339, HAL.
    2. Allegret, Jean-Pierre & Raymond, Hélène & Rharrabti, Houda, 2017. "The impact of the European sovereign debt crisis on banks stocks. Some evidence of shift contagion in Europe," Journal of Banking & Finance, Elsevier, vol. 74(C), pages 24-37.
    3. María Cantero Sáiz & Sergio Sanfilippo Azofra & Begoña Torre Olmo, 2019. "The single supervision mechanism and contagion between bank and sovereign risk," Journal of Regulatory Economics, Springer, vol. 55(1), pages 67-106, February.
    4. Zura Kakushadze, 2014. "4-Factor Model for Overnight Returns," Papers 1410.5513, arXiv.org, revised Jun 2015.
    5. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, December.
    6. Lu Zhang, 2017. "The Investment CAPM," European Financial Management, European Financial Management Association, vol. 23(4), pages 545-603, September.
    7. Zura Kakushadze & Willie Yu, 2016. "Multifactor Risk Models and Heterotic CAPM," Papers 1602.04902, arXiv.org, revised Mar 2016.
    8. Lubos Pastor & Robert F. Stambaugh, "undated". "Evaluating and Investing in Equity Mutual Funds," CRSP working papers 516, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    9. repec:wvu:wpaper:10-08 is not listed on IDEAS
    10. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    11. Sawaliya, Priya & Sinha, Pankaj, 2018. "Behaviour of asset pricing models in pre and post-recession period: an evidence from India," MPRA Paper 93084, University Library of Munich, Germany, revised 22 Jan 2019.
    12. Rocciolo, Francesco & Gheno, Andrea & Brooks, Chris, 2022. "Explaining abnormal returns in stock markets: An alpha-neutral version of the CAPM," International Review of Financial Analysis, Elsevier, vol. 82(C).
    13. Arnold, Ivo J.M. & Soederhuizen, Beau, 2018. "Sovereign bond holdings and monetary policy operations in the euro area," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1243-1254.
    14. Marcel Fratzscher & Malte Rieth, 2019. "Monetary Policy, Bank Bailouts and the Sovereign-Bank Risk Nexus in the Euro Area," Review of Finance, European Finance Association, vol. 23(4), pages 745-775.
    15. Randi Næs & Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2009. "What factors affect the Oslo Stock Exchange?," Working Paper 2009/24, Norges Bank.
    16. Zura Kakushadze & Jim Kyung-Soo Liew, 2015. "Custom v. Standardized Risk Models," Risks, MDPI, vol. 3(2), pages 1-27, May.
    17. MacDonald, Ronald & Sogiakas, Vasilios & Tsopanakis, Andreas, 2018. "Volatility co-movements and spillover effects within the Eurozone economies: A multivariate GARCH approach using the financial stress index," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 52(C), pages 17-36.
    18. Sainan Jin & Liangjun Su & Yonghui Zhang, 2015. "Nonparametric testing for anomaly effects in empirical asset pricing models," Empirical Economics, Springer, vol. 48(1), pages 9-36, February.
    19. John Y. Campbell, 2000. "Asset Pricing at the Millennium," Journal of Finance, American Finance Association, vol. 55(4), pages 1515-1567, August.
    20. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    21. Phan Tran Minh Hung & Tran Thi Trang Dai & Phan Nguyen Bao Quynh & Le Duc Toan & Vo Hoang Diem Trinh, 2019. "The Relationship between Risk and Return - An Empirical Evidence from Real Estate Stocks Listed in Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(11), pages 1211-1226, November.

    More about this item

    Keywords

    Smooth Transition Regression model; European sovereign debt crisis; Banks’ equity returns; Contagion; Interdependence.;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • G2 - Financial Economics - - Financial Institutions and Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ers:journl:v:xix:y:2016:i:1:p:129-148. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marios Agiomavritis (email available below). General contact details of provider: https://ersj.eu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.