The reaction of bank stock prices to the international debt crisis

In this paper we develop a cross-sectional regression approach to estimate the impact of foreign loan exposure on the pricing of U.S. bank stocks. A new approach is required because news about foreign loan problems may arrive incremently over time, rather than reaching the market on a few specific d...

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Bibliographic Details
Published in:Journal of banking & finance 1986-03, Vol.10 (1), p.55-73
Main Authors: Cornell, Bradford, Shapiro, Alan C.
Format: Article
Language:English
Subjects:
Bank stocks
Crisis
Debt
Impacts
International finance
Money center banks
Statistical analysis
Stock prices
Studies
Tests
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Summary:In this paper we develop a cross-sectional regression approach to estimate the impact of foreign loan exposure on the pricing of U.S. bank stocks. A new approach is required because news about foreign loan problems may arrive incremently over time, rather than reaching the market on a few specific dates the way earnings and dividend announcements do. Consistent with this interpretation, we find that foreign loan exposure had a significant impact on the pricing of U.S. bank stocks during the years 1982 and 1983, but that the stock prices adjusted continually over the two-year period rather than jumping on a few particular days.
ISSN:0378-4266
1872-6372
DOI:10.1016/0378-4266(86)90020-8