Banks’ Stock Market Reaction To Prudential Policy Announcements. The Role Of Central Bank Independence And Financial Stability Sentiment

Andreea Maura Bobiceanu, Simona Nistor and Steven Ongena
Additional contact information
Andreea Maura Bobiceanu: Babes-Bolyai University
Simona Nistor: Babes-Bolyai University - Department of Finance

No 25-11, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We leverage differences in central bank independence and financial stability sentiment across countries to investigate the variability in banks' stock market reactions to prudential policy announcements during the COVID-19 crisis. Our findings reveal that the relaxation of both macro and micro-prudential policies leads to negative cumulative abnormal returns (CARs), the reaction being attenuated in countries where the central bank is more independent or communicates deteriorations in financial stability. The CARs around the announcement dates are 0.75 percentage points (pp) and 6.89 pp higher in countries with greater versus lesser central bank independence, for macro- and micro-prudential policy announcements. The difference is close to 3.73 pp and 5.65 pp between banks based in countries where the central bank communicates a negative versus a positive sentiment about financial stability. The positive effect of higher degrees of central bank independence and deteriorations in financial stability sentiment on bank market valuation is enhanced for smaller banks, and in countries characterized by greater fiscal flexibility, and a higher prevalence of privately owned banks.

Keywords: stock market reaction; macro-prudential regulation; micro-prudential regulation; central bank independence; financial stability sentiment (search for similar items in EconPapers)
JEL-codes: E61 G14 G21 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2025-01
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-fmk and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5108499 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2511

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().