Sovereign credit risk, banks' government support, and bank stock returns around the world

Ricardo Correa, Kuan-Hui Lee, Horacio Sapriza and Gustavo Suarez

No 1069, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We explore the joint effect of expected government support to banks and changes in sovereign credit ratings on bank stock returns using data for banks in 37 countries between 1995 and 2011. We find that sovereign credit rating downgrades have a large negative effect on bank stock returns for those banks that are expected to receive stronger support from their governments. This result is stronger for banks in advanced economies where governments are better-positioned to provide that support. Our results suggest that stock market investors perceive sovereigns and domestic banks as markedly interconnected, partly through government guarantees.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/2012/1069/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/2012/1069/ifdp1069.pdf (application/pdf)

Related works:
Journal Article: Sovereign Credit Risk, Banks' Government Support, and Bank Stock Returns around the World (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1069

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().