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Reactions of equity markets to recent financial reforms

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  • Sorokina, Nonna
  • Thornton, John H.

Abstract

We conduct event studies of broad equity market reaction to the events surrounding introduction and enactment of recent financial reform initiatives. In response to the introduction of the Dodd-Frank Act, financial firms and firms from a few other industries experience a statistically significant decrease in systematic risk, while a substantial number of industries, representing a broad cross-section of the economy, experiences a statistically significant increase in systematic risk. The systematic risk in some industries does not change. The increase in risk is concentrated in industries in which firms are dependent on external capital. The initial market reaction to Dodd-Frank indicates that it may lower the risk in financial firms, but the risk for many non-financial firms simultaneously increases.

Suggested Citation

  • Sorokina, Nonna & Thornton, John H., 2016. "Reactions of equity markets to recent financial reforms," Journal of Economics and Business, Elsevier, vol. 87(C), pages 50-69.
    • Handle: RePEc:eee:jebusi:v:87:y:2016:i:c:p:50-69
    DOI: 10.1016/j.jeconbus.2016.05.001
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    Cited by:

    1. William J. Hippler & Shadiya Hossain & M. Kabir Hassan, 2019. "Financial crisis spillover from Wall Street to Main Street: further evidence," Empirical Economics, Springer, vol. 56(6), pages 1893-1938, June.

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    More about this item

    Keywords

    Dodd-Frank Act; Systematic risk; Regulation; Event study; Dependence on external capital;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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