Disclosure, Banks CDS Spreads and the European Sovereign Crisis

Working paper CRESE No. 2015–10

29 Pages Posted: 4 Oct 2015 Last revised: 26 Jun 2016

See all articles by Hervé Alexandre

Hervé Alexandre

Université Paris-Dauphine, PSL Research University

François Guillemin

National Research University Higher School of Economics

Catherine Refait-Alexandre

CRESE - Université Franche Comté

Date Written: September 2015

Abstract

We investigate the impact of banks disclosure on the evolution of their CDS spreads during the European sovereign crisis. The disclosure of information help investors in building expectations so disclosure may participate into the reduction of the information risk premium and reduces CDS spread. We analyze the CDS spread changes following the announcement of sovereign credit rating downgrades. We consider 16 dates in the period 2011-2013 and for each one, we assess the cumulative abnormal CDS spread change (CASC). We build two disclosure indexes: one general and one specifically dedicated to sovereign exposure. We show that the bank exposure to sovereign risk has a positive impact on the CASC. Disclosure about sovereign exposure has a negative impact on CASC showing that information reduce risk premiums. However, the global disclosure increases the CASC; investors may disapprove the disclosure of too much abundant and broad information.

Keywords: bank, sovereign crisis, disclosure, CDS

JEL Classification: G14, G21

Suggested Citation

Alexandre, Hervé and Guillemin, François and Refait-Alexandre, Catherine, Disclosure, Banks CDS Spreads and the European Sovereign Crisis (September 2015). Working paper CRESE No. 2015–10, Available at SSRN: https://ssrn.com/abstract=2668527 or http://dx.doi.org/10.2139/ssrn.2668527

Hervé Alexandre

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

François Guillemin

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Catherine Refait-Alexandre (Contact Author)

CRESE - Université Franche Comté ( email )

31 Avenue de l'Observatoire
Besançon, Doubs 25000
France

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