News spillovers from the Greek debt crisis: Impact on the Eurozone financial sector

We examine the impact of changes in Greek sovereign yield spreads on abnormal returns of financial sector stocks for a sample of Eurozone countries, during the Greek debt crisis. We find that increases in yield spreads are associated with negative abnormal returns on financial stocks in the Portugal...

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Bibliographic Details
Published in:Journal of banking & finance 2014-01, Vol.38, p.51-63
Main Authors: Bhanot, Karan, Burns, Natasha, Hunter, Delroy, Williams, Michael
Format: Article
Language:English
Subjects:
Abnormal returns
Bank stocks
Contagion
Eastern Europe
Economic crisis
Economic forecasts
Eurozone
Eurozone debt crisis
Financial analysis
Financial crisis
Financial services
G01
G14
G15
Greece
Interest rates
Market forecasts
Netherlands
Portugal
Public debt policy
Sovereign debt
Sovereignty
Spain
Spillovers
Spread
Studies
Western Europe
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Summary:We examine the impact of changes in Greek sovereign yield spreads on abnormal returns of financial sector stocks for a sample of Eurozone countries, during the Greek debt crisis. We find that increases in yield spreads are associated with negative abnormal returns on financial stocks in the Portugal, Spain and Netherlands. These abnormal returns are driven in part by ratings downgrades and other unfavorable news announcements about Greece. We isolate the effects of known transmission channels–impairment of financial firms’ asset base due to cross-holdings of Greek bonds, from increases in domestic interest rates and higher funding costs. Our analysis indicates that news events lead to spillovers in excess of what can be explained by these channels of transmission.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2013.09.015