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Contagion during the Greek Sovereign Debt Crisis

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  • Mark Mink
  • Jakob de Haan

Abstract

Using an event study approach, we examine the impact of news about Greece and news about a Greek bailout on bank stock prices in 2010 using data for 48 banks included in the European stress tests. We identify the twenty days with extreme returns on Greek sovereign bonds and categorize the news events during those days into news about Greece and news about the prospects of a Greek bailout. We find that news about Greece does not lead to abnormal returns while news about a bailout does, even for banks without any exposure to Greece or other highly indebted euro countries. This finding suggests that markets consider news about the bailout to be a signal of European governments' willingness in general to use public funds to combat the financial crisis. Sovereign bond prices of Portugal, Ireland, and Spain respond to both news about Greece and news about a Greek bailout.

Suggested Citation

  • Mark Mink & Jakob de Haan, 2012. "Contagion during the Greek Sovereign Debt Crisis," DNB Working Papers 335, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:335
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    More about this item

    Keywords

    contagion; euro crisis; event study;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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