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Reactions of equity markets to recent financial reforms

Nonna Sorokina and John Thornton

Journal of Economics and Business, 2016, vol. 87, issue C, 50-69

Abstract: We conduct event studies of broad equity market reaction to the events surrounding introduction and enactment of recent financial reform initiatives. In response to the introduction of the Dodd-Frank Act, financial firms and firms from a few other industries experience a statistically significant decrease in systematic risk, while a substantial number of industries, representing a broad cross-section of the economy, experiences a statistically significant increase in systematic risk. The systematic risk in some industries does not change. The increase in risk is concentrated in industries in which firms are dependent on external capital. The initial market reaction to Dodd-Frank indicates that it may lower the risk in financial firms, but the risk for many non-financial firms simultaneously increases.

Keywords: Dodd-Frank Act; Systematic risk; Regulation; Event study; Dependence on external capital (search for similar items in EconPapers)
JEL-codes: G14 G21 G28 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.jeconbus.2016.05.001

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