Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7409424 | Journal of Financial Stability | 2016 | 31 Pages |
Abstract
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.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics, Econometrics and Finance (General)
Authors
Heather D. Gibson, Stephen G. Hall, George S. Tavlas,