BANK FAILURE AND CONTAGION EFFECTS: EVIDENCE FROM HONG KONG

In this paper the influence of three Hong Kong bank failures on stock prices of the colony's banking industry is examined. As deposit insurance is nonexistent in Hong Kong, the world's fourth‐largest financial center, an interesting environment is provided for testing contagion effects of...

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Bibliographic Details
Published in:The Journal of financial research 1991-06, Vol.14 (2), p.153-165
Main Authors: Gay, Gerald D., Timme, Stephen G., Yung, Kenneth
Format: Article
Language:English
Subjects:
Bank failures
Banking industry
Deposit insurance
Economic models
Impact analysis
Manycompanies
Regression analysis
Stock prices
Studies
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Summary:In this paper the influence of three Hong Kong bank failures on stock prices of the colony's banking industry is examined. As deposit insurance is nonexistent in Hong Kong, the world's fourth‐largest financial center, an interesting environment is provided for testing contagion effects of bank failure on other healthy financial institutions. By examining contagion effects in an environment void of explicit deposit insurance, this study should provide interesting insights into the resiliency of modern‐day financial markets. In turn, insights should also be provided into debates concerning the role and reform of deposit insurance and the rationale for regulation of the financial services industry in general. The results indicate that unexpected bank failure causes significant negative stock price reactions within the banking industry; yet, some banks are less affected than others.
ISSN:0270-2592
1475-6803
DOI:10.1111/j.1475-6803.1991.tb00653.x