The impact of the European sovereign debt crisis on banks stocks. Some evidence of shift contagion in Europe

Jean-Pierre Allegret, Helene Raymond and Houda Rharrabti

Journal of Banking & Finance, 2017, vol. 74, issue C, 24-37

Abstract: This paper analyzes the influence of the recent European sovereign debt crisis on banks’ equity returns for 15 countries. Our data span the period December 14th 2007-March 8th 2013 that encompasses several 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 the negative impact of the European sovereign debt crisis on banks’ equity returns has been mostly confined to European banks, whereas U.S. banks appear to be unharmed by its direct impact and may even have benefited from it. Besides, we find some evidence of shift contagion across Europe.

Keywords: Smooth transition regression model; European sovereign debt crisis; Banks’ equity returns; Contagion; Interdependence (search for similar items in EconPapers)
JEL-codes: E6 F3 G2 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Working Paper: The impact of the European sovereign debt crisis on banks stocks. Some evidence of shift contagion in Europe (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:74:y:2017:i:c:p:24-37

DOI: 10.1016/j.jbankfin.2016.10.004

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