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The Impact of the Eurozone Crisis on European Banks Stocks Contagion or Interdependence?

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  • Jean-Pierre Allegret
  • Helene Raymond
  • Houda Rharrabti

Abstract

This paper analyzes the influence of successive crises, including the recent European sovereign debt crisis, on banks’ equity returns from 11 countries. Our data span the period December 14th 2007-March 8th 2013 that encompasses different episodes of economic and financial turmoil since the collapse of the subprime credit market. Our contribution to the literature is twofold. First, we use an explicit multifactor model of equity returns extended with a sovereign risk factor. Second, we adopt a Smooth Transition Regression (STR) framework that allows for an endogenous definition of crisis periods and captures the changes in parameters associated with shift contagion. We find that contagion from the European sovereign debt crisis to banks’ equity returns has been confined to European banks, as U.S. banks’ equity returns were unharmed by its direct impact and may even have benefited from a kind of flight to quality effect. Besides, across banks from the euro area, German financial institutions have not been completely spared by the Eurozone debt crisis, though they have been relatively less affected.

Suggested Citation

  • Jean-Pierre Allegret & Helene Raymond & Houda Rharrabti, 2016. "The Impact of the Eurozone Crisis on European Banks Stocks Contagion or Interdependence?," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 129-148.
  • Handle: RePEc:ers:journl:v:xix:y:2016:i:1:p:129-148
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    References listed on IDEAS

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    Keywords

    Smooth Transition Regression model; European sovereign debt crisis; Banks’ equity returns; Contagion; Interdependence.;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • G2 - Financial Economics - - Financial Institutions and Services

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