Market Perceptions of US and European Policy Actions Around the Subprime Crisis

31 Pages Posted: 20 Aug 2012

See all articles by Theoharry Grammatikos

Theoharry Grammatikos

Luxembourg School of Finance

Thorsten Lehnert

University of Luxembourg

Yoichi Otsubo

University of Manchester - Alliance Manchester Business School

Date Written: August 2, 2012

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 event-induced volatility increases.

Keywords: event study, policy announcement, subprime crisis

JEL Classification: G01, G14, G18, G21, G28

Suggested Citation

Grammatikos, Theoharry and Lehnert, Thorsten and Otsubo, Yoichi, Market Perceptions of US and European Policy Actions Around the Subprime Crisis (August 2, 2012). 25th Australasian Finance and Banking Conference 2012. Available at SSRN: https://ssrn.com/abstract=2132434 or http://dx.doi.org/10.2139/ssrn.2132434

Theoharry Grammatikos

Luxembourg School of Finance ( email )

4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg

Thorsten Lehnert

University of Luxembourg ( email )

6, rue Coudenhove-Kalergi
Luxembourg, L-1359
Luxembourg

Yoichi Otsubo (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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