The impact of the global and eurozone crises on European banks stocks Some evidence of shift contagion

Jean-Pierre Allegret, Helene Raymond and Houda Rharrabti ()

No 2014-24, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper analyzes the influence of successive crises, including the recent European sovereign debt crisis, on banks’ equity returns for 11 countries. Our data span the period December 14th 2007-March 8th 2013 that encompasses different 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 contagion from the European sovereign debt crisis to banks’ equity returns has been confined to eurozone banks, whereas U.S. banks’ equity returns were unharmed by its direct impact and may even have benefited from a kind of flight to quality effect. Besides, across banks from the euro area, German financial institutions have not been completely spared by the eurozone debt crisis, though they have been relatively less affected.

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)
Pages: 26 pages
Date: 2014
New Economics Papers: this item is included in nep-ban, nep-cba and nep-eec
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Working Paper: The impact of the global and eurozone crises on European banks stocks Some evidence of shift contagion (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2014-24

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