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Market Perceptions of US and European Policy Actions Around the Subprime Crisis

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  • Yoichi Otsubo

    ()

  • Theoharry Grammatikos
  • Thorsten Lehnert

    (LSF)

Abstract

Abstract: This paper explores the impacts of key policy actions by US and European authorities on stock returns of systemically important banks in Europe and US around the subprime crisis. We find that the US policy announcements had a stronger impact on the European and US banking industry than the European policy announcements. In particular, the announcements of monetary policies and financial sector policies by the US authorities were accompanied by higher abnormal returns compared to related announcements of European authorities while the announcements of the US liability guarantees had the most favorable impact on the banking stock returns during the crisis. The lead role of US policies compared to European policies was strengthened after the collapse of Lehman brothers. We also find that the policy announcements, regardless of which side of the Atlantic the news arrived from, has increased the return volatility during the crisis. Our results lend additional support to the literature documenting eventinduced volatility increases.

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File URL: http://wwwen.uni.lu/content/download/54717/649118/file/Market%20Perceptions%20of%20US%20and%20European%20Policy%20Actions%20Around%20the%20Subprime%20Crisis%202012%20(14).pdf
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Bibliographic Info

Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 12-14.

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Date of creation: 2012
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Handle: RePEc:luc:wpaper:12-14

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Keywords: "Event study; Policy Announcement; Subprime crisis; ";

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Cited by:
  1. Yutao Han & Patrice Pieretti & Benteng Zou, 2013. "The Dynamics of the Location of Firms – A Revisit of Home-Attachment under Tax Competition," CREA Discussion Paper Series 13-15, Center for Research in Economic Analysis, University of Luxembourg.

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