Firm-Specific Shocks and Contagion: Are Banks Special?
54 Pages Posted: 15 Oct 2020
Date Written: October, 2020
This paper builds a database of idiosyncratic shocks (events) in global banks and car manufacturers (as representative of non-financial firms), and focuses on how these influence a number of macroeconomic and firm-specific variables in the short- and medium-term. We find that these shocks spawn large and persistent effects on the firms’ own market valuation in terms of their equity prices, CDS spreads and expected default probabilities, while contagion across firms in both sectors is generally small. Surprisingly, we find that spill-overs of bank-related events are not significantly different from the car sector, suggesting that, at least from this perspective, banks are not special. We also investigate whether our events are “granular”, i.e. influencing aggregate variables such as the VIX, equity indexes and key exchange rates, with mixed results.
Keywords: contagion, event study, global banks, local projections, systemic risk
JEL Classification: F3, G2
Suggested Citation: Suggested Citation