Disclosure, banks CDS spreads and the European sovereign crisis

Hervé Alexandre (), François Guillemin () and Catherine Refait-Alexandre

No 2015-10, Working Papers from CRESE

Abstract: We investigate the impact of banks disclosure on the evolution of their CDS spreads during the European sovereign crisis. The disclosure of information help investors in building expectations so disclosure may participate into the reduction of the information risk premium and reduces CDS spread. We analyze the CDS spread 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)
JEL-codes: G14 G21 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2015-09
New Economics Papers: this item is included in nep-ban and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Disclosure, banks CDS spreads and the European sovereign crisis (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:crb:wpaper:2015-10

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