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Disclosure, banks CDS spreads and the European sovereign crisis

Hervé Alexandre (herve.alexandre@dauphine.psl.eu), Catherine Refait-Alexandre and François Guillemin (72fguillemin@gmail.com)

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Abstract: We investigate the impact of banks disclosure on the evolution of their CDS spreads during the European sovereign crisis. The disclosure of information helps investors in building expectations; disclosure may participate into the reduction of the information risk premium and may lead to a decrease of CDS spreads. We analyze the CDS spreads changes following the announcement of sovereign credit rating downgrades. We consider 16 dates in the period 2011-2013 and, for each one, we assess the cumulative abnormal CDS spread change (CASC). We build two disclosure indexes: one general and one specifically dedicated to sovereign exposure. We show that the bank exposure to sovereign risk has a positive impact on the CASC. Disclosure about sovereign exposure has a negative impact on CASC showing that information reduce risk premiums. However, the global disclosure increases the CASC; investors may disapprove the disclosure of too much abundant and broad information.

Keywords: bank; sovereign crisis; disclosure; CDS (search for similar items in EconPapers)
Date: 2015-09-01
New Economics Papers: this item is included in nep-ban
Note: View the original document on HAL open archive server: https://hal.science/hal-01376916
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