Abstract

http://ssrn.com/abstract=1727322
 
 

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Can Market Actors Help Monitor European Banks?


Anissa Naouar


affiliation not provided to SSRN

October 1, 2010

Frontiers in Finance and Economics, Vol. 7, No. 2, 138-182, October 2010

Abstract:     
This paper focuses on the use of equity market information for the monitoring of European banks. To this end, we conduct two event studies: 1) whether equity market variables can in a timely manner anticipate changes with a constructed rating- proxy of the supervisory rating- named ‘Financial Situation Evaluation’ (FSEvaluation), for audited banks, 2) whether Rating Agencies (RAs) can help monitor European banks during the period 1990-2006.

Results show that equity market returns help to anticipate, several quarters in advance, a balance-sheet-based evaluation. However, they issue a counterintuitive signal when European banks are facing a negative evaluation of their risk and/or capital position.

RAs have an additional role especially effective in summarising positive information. However, RAs are shown to take time to downgrade banks. Finally, results find evidence that investors' behaviour is, at least in part, encouraged by a “too big to fail” policy from which large European banks benefit.

Number of Pages in PDF File: 45

Keywords: Equity market information, rating agencies, event study, Bank monitoring

JEL Classification: G14, G18, G21

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Date posted: December 17, 2010  

Suggested Citation

Naouar, Anissa, Can Market Actors Help Monitor European Banks? (October 1, 2010). Frontiers in Finance and Economics, Vol. 7, No. 2, 138-182, October 2010. Available at SSRN: http://ssrn.com/abstract=1727322

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Anissa Naouar (Contact Author)
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