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Market Efficiency during the Global Financial Crisis: Empirical Evidence from European Banks

Market Efficiency during the Global Financial Crisis: Empirical Evidence from European Banks
Market Efficiency during the Global Financial Crisis: Empirical Evidence from European Banks
This paper empirically investigates the asymmetric effect of news on the time-varying beta of selected banks from seven European countries during the current crisis period and also during the pre-crisis period. The paper applies daily data from thirteen large banks from France, Germany, Greece, Ireland, Italy, Portugal and Spain. The sample size ranges from 2002 to 2013 and includes the current global financial crisis (2007-2013). The BEKK GARCH model is first employed to estimate the time-varying beta and then linear regression is applied to investigate the asymmetric effect of news on the beta. The asymmetric effects are investigated based on both market and non-market shocks. Results show that some evidence of market efficiency can be witnessed via non-market shocks, however the market shocks indicate that the European banks foster a significant amount of uncertainty leading to asset mispricing. Results also show a clear rift in terms of quality of results between France and Germany taken as a group and the rest of the countries under study. These results shed light on the level of market efficiency and hedging strategies.
0261-5606
299-318
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Jayasekera, Ranadeva
1788723e-6a7e-4302-9358-26acd64ea204
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Jayasekera, Ranadeva
1788723e-6a7e-4302-9358-26acd64ea204

Choudhry, Taufiq and Jayasekera, Ranadeva (2014) Market Efficiency during the Global Financial Crisis: Empirical Evidence from European Banks. Journal of International Money and Finance, 49 (B), 299-318. (doi:10.1016/j.jimonfin.2014.03.008).

Record type: Article

Abstract

This paper empirically investigates the asymmetric effect of news on the time-varying beta of selected banks from seven European countries during the current crisis period and also during the pre-crisis period. The paper applies daily data from thirteen large banks from France, Germany, Greece, Ireland, Italy, Portugal and Spain. The sample size ranges from 2002 to 2013 and includes the current global financial crisis (2007-2013). The BEKK GARCH model is first employed to estimate the time-varying beta and then linear regression is applied to investigate the asymmetric effect of news on the beta. The asymmetric effects are investigated based on both market and non-market shocks. Results show that some evidence of market efficiency can be witnessed via non-market shocks, however the market shocks indicate that the European banks foster a significant amount of uncertainty leading to asset mispricing. Results also show a clear rift in terms of quality of results between France and Germany taken as a group and the rest of the countries under study. These results shed light on the level of market efficiency and hedging strategies.

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More information

e-pub ahead of print date: 18 April 2014
Published date: December 2014
Organisations: Centre for Digital, Interactive & Data Driven Marketing

Identifiers

Local EPrints ID: 364343
URI: http://eprints.soton.ac.uk/id/eprint/364343
ISSN: 0261-5606
PURE UUID: 73189449-a4f6-4422-b2b7-6c8c4f0fe893
ORCID for Taufiq Choudhry: ORCID iD orcid.org/0000-0002-0463-0662

Catalogue record

Date deposited: 24 Apr 2014 10:48
Last modified: 09 Nov 2021 03:01

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Contributors

Author: Taufiq Choudhry ORCID iD
Author: Ranadeva Jayasekera

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