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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

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

Suggested Citation

  • Yoichi Otsubo & Theoharry Grammatikos & Thorsten Lehnert, 2012. "Market Perceptions of US and European Policy Actions Around the Subprime Crisis," LSF Research Working Paper Series 12-14, Luxembourg School of Finance, University of Luxembourg.
  • Handle: RePEc:crf:wpaper:12-14
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    References listed on IDEAS

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    Cited by:

    1. Kräussl, Roman & Lehnert, Thorsten & Senulytė, Sigita, 2016. "Euro crash risk," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 417-428.
    2. Samargandi, Nahla & Kutan, Ali M., 2016. "Private credit spillovers and economic growth: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 56-84.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • 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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