Crashes and Bank Opaqueness

Posted: 8 May 2010

See all articles by Giuliano Iannotta

Giuliano Iannotta

Università Cattolica

Marco A. Navone

Finance Discipline Group - UTS Business School; Bocconi University - CAREFIN - Centre for Applied Research in Finance; Financial Research Network (FIRN)

Date Written: December 1, 2009

Abstract

We investigate bank opaqueness by looking at the frequency of large, negative, market-adjusted returns (crashes). We analyze crashes on a sample of US stocks traded in the 1990-2007 period. Jin and Myers (2006) predict that opaqueness coupled with weak investors’ protection generate more frequent crashes. After controlling for size and leverage, banks (and insurance firms) generate more frequent crashes relative to other firms. We also find that weak investors’ protection, as measured by the Governance Index from Gompers, Ishii, and Metrick (2003) is associated with higher crash frequency. After controlling for investors’ protection, banks still exhibit more frequent crashes. We therefore conclude that banks are more opaque than non-banks.

Keywords: G20, G21, G28

JEL Classification: Banks, opaqueness, crashes

Suggested Citation

Iannotta, Giuliano and Navone, Marco A., Crashes and Bank Opaqueness (December 1, 2009). CAREFIN Research Paper No. 20/09, Available at SSRN: https://ssrn.com/abstract=1600190

Giuliano Iannotta (Contact Author)

Università Cattolica ( email )

20123 Milano
Italy

Marco A. Navone

Finance Discipline Group - UTS Business School ( email )

Haymarket
Sydney, NSW 2007
Australia

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti, 25
Milan, 20136
Italy

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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