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How the euro-area sovereign-debt crisis led to a collapse in bank equity prices

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journal contribution
posted on 2015-11-16, 10:49 authored by Stephen Hall, George S. Tavlas, H. Gibson
We quantify the linkages among banks’ equity performance and indicators of sovereign stress by using panel GMM to estimate a three-equation system that examines the impact of sovereign stress, as reflected in both sovereign spreads and sovereign ratings, on bank share prices. We use data for a panel of five euro-area stressed countries. Our findings indicate that a recursive relationship between sovereigns and banks operated during the euro-area crisis. Specifically, for the five crisis countries considered shocks to sovereign spreads fed-through to sovereign ratings, which affected commercial banks’ equity-prices. Our results also point to the importance of using levels of equity prices – rather than rates of return – in measuring banks’ performance. The use of levels allows us to derive the determinants of long-run equity prices.

History

Citation

Journal of Financial Stability, 2016, 26, pp. 266–275

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/Department of Economics

Version

  • AM (Accepted Manuscript)

Published in

Journal of Financial Stability

Publisher

Elsevier

issn

1572-3089

Acceptance date

2016-07-20

Copyright date

2016

Available date

2018-07-21

Publisher version

http://www.sciencedirect.com/science/article/pii/S1572308916300638

Notes

The file associated with this record is under embargo until 24 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.

Language

en

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