Were U.S. Banks Exposed to the Greek Debt Crisis? Evidence from Greek CDS Spreads

30 Pages Posted: 21 Jan 2016

See all articles by Marcia Millon Cornett

Marcia Millon Cornett

Bentley University - Department of Finance

Otgontsetseg Erhemjamts

Bentley University - Department of Finance; Bentley University

Jim Musumeci

Bentley University - Department of Finance

Date Written: January 2016

Abstract

This study provides an empirical analysis of the impact of the Greek debt crisis on stock returns of U.S. commercial banks. We find that good (bad) news events pertaining to the Greek debt crisis, identified by large changes in the Greek CDS spread, produce insignificant positive (negative) abnormal stock returns. While banks were exposed to Greek debt, their exposure was such that it did not result in any abnormal fluctuations in bank values at the height of the crisis. When we measure the sensitivity of bank returns to changes in the Greek CDS spread in an effort to measure banks’ exposure to the crisis, we find that changes in the Greek CDS spread provide no additional explanatory power for bank returns beyond what a U.S. market index does. Finally, we find no bank characteristic that allows us to consistently predict the effect of the Greek crisis on specific banks.

Keywords: financial institutions, international debt problems, credit default swaps, financial crisis

JEL Classification: F34, G11, G15, G21, H87

Suggested Citation

Cornett, Marcia Millon and Erhemjamts, Otgontsetseg and Musumeci, Jim, Were U.S. Banks Exposed to the Greek Debt Crisis? Evidence from Greek CDS Spreads (January 2016). Financial Markets, Institutions & Instruments, Vol. 25, Issue 1, pp. 75-104, 2016, Available at SSRN: https://ssrn.com/abstract=2719298 or http://dx.doi.org/10.1111/fmii.12036

Marcia Millon Cornett (Contact Author)

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Otgontsetseg Erhemjamts

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States
781-891-2823 (Phone)

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States
781-891-2823 (Phone)
781-891-2896 (Fax)

Jim Musumeci

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

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