Financial Firm Bankruptcies, International Stock Markets and Investor Sentiment
International Journal of Finance and Economics, Vol. 24 (1), pp. 461-473, January 2019
32 Pages Posted: 5 Feb 2019 Last revised: 28 Feb 2020
Date Written: September 1, 2018
We consider bankruptcy announcements of large financial institutions in the US and examine their impact on an international sample of 66 stock market indices. Employing an event-study methodology, we find that stock markets exhibit strong adverse reaction in the aftermath of such announcements. Further, we develop a Surprise measure, based on the country-level investor sentiment, and find that stock markets in negatively surprised countries respond quickly, by sustaining significantly larger declines in the first three trading days following the announcements. Finally, we examine the reaction of stock markets, conditional on the economic classification of their home countries, and find that stock markets in developing (developed) economies are associated with substantially larger (smaller) economic losses.
Keywords: Bankruptcy Announcements, Financial Firms, International Stock Markets, Investor Sentiment, Economic Classification
JEL Classification: G14, G15, G33
Suggested Citation: Suggested Citation