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What do we know about the stock markets’ reaction to regulatory announcements regarding financial institutions? Evidence from UK financial institutions

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  • Stephen Kawas

    (University of Portsmouth)

  • Everton Dockery

    (University of Portsmouth)

Abstract

This paper employs an event study approach to examine stock price reactions around announcements of regulatory changes to strengthen UK financial regulation and financial institutions stability from 2000 to 2014. These announcements include the Financial Services and Markets Act 2000, the Market Abuse Directive, the Banking Act 2009, Basel III, the Finance Act 2012, and MiFID II, among other regulatory announcements. Our data covers the period 2000–2014 and five UK financial sectors. Event study results indicate mixed evidence on market reaction to announcements of regulatory changes, owing to the source of the regulation. A key finding is the presence of market inefficiency in the pricing in of impending regulatory announcements on equities. Stock price reactions differed concerning the impact of announcements on bank and insurance firms’ CDS spreads to recommendations linked to the Turner review and the Vickers reform proposals.

Suggested Citation

  • Stephen Kawas & Everton Dockery, 2023. "What do we know about the stock markets’ reaction to regulatory announcements regarding financial institutions? Evidence from UK financial institutions," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 31-67, January.
    • Handle: RePEc:kap:rqfnac:v:60:y:2023:i:1:d:10.1007_s11156-022-01088-2
    DOI: 10.1007/s11156-022-01088-2
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    More about this item

    Keywords

    Financial regulation; UK financial institutions; Credit default swap; Market reaction; EGARCH and GJR-GARCH;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G2 - Financial Economics - - Financial Institutions and Services
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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