The Announcement Effect of the EFSF

38 Pages Posted: 15 Mar 2012

See all articles by Stephan Dieckmann

Stephan Dieckmann

University of Pennsylvania - Finance Department

Date Written: February 29, 2012


This paper documents the market reaction to the introduction of the European Financial Stability Facility (EFSF) in 2010 and 2011. The effect on borrowing rates is ambiguous - Greece, Ireland, Portugal, Spain, Italy and Slovenia exhibit a decrease in rates on event days, the remaining Eurozone countries exhibit an increase. The sovereign CDS market shows that not all of the effect on rates can be attributed to the assumption of default risk. CDS spreads do not increase in the case of Germany, France, the Netherlands, and Finland, consistent with a moderate increase in riskless rates. However, the net effect on the value of all Eurozone debt is positive and amounts to EUR 108 billion. Market participants also seem to anticipate an impact on real economic conditions given that the increase in non-financial equity value is EUR 126 billion, or 1.4% of Eurozone GDP.

Keywords: sovereign debt, intervention, EMU, debt crisis, loan guarantee, event study

JEL Classification: G15, F34, H63, H81

Suggested Citation

Dieckmann, Stephan, The Announcement Effect of the EFSF (February 29, 2012). AFA 2013 San Diego Meetings Paper, Available at SSRN: or

Stephan Dieckmann (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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