What do we know about the stock markets’ reaction to regulatory announcements regarding financial institutions? Evidence from UK financial institutions

Stephen Kawas () and Everton Dockery ()
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Stephen Kawas: University of Portsmouth
Everton Dockery: University of Portsmouth

Review of Quantitative Finance and Accounting, 2023, vol. 60, issue 1, No 2, 67 pages

Abstract: Abstract This paper employs an event study approach to examine stock price reactions around announcements of regulatory changes to strengthen UK financial regulation and financial institutions stability from 2000 to 2014. These announcements include the Financial Services and Markets Act 2000, the Market Abuse Directive, the Banking Act 2009, Basel III, the Finance Act 2012, and MiFID II, among other regulatory announcements. Our data covers the period 2000–2014 and five UK financial sectors. Event study results indicate mixed evidence on market reaction to announcements of regulatory changes, owing to the source of the regulation. A key finding is the presence of market inefficiency in the pricing in of impending regulatory announcements on equities. Stock price reactions differed concerning the impact of announcements on bank and insurance firms’ CDS spreads to recommendations linked to the Turner review and the Vickers reform proposals.

Keywords: Financial regulation; UK financial institutions; Credit default swap; Market reaction; EGARCH and GJR-GARCH (search for similar items in EconPapers)
JEL-codes: F3 G14 G2 G38 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-022-01088-2

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