The paper investigates empirically what kind of relationship between banking sector's CDS spreads and balance sheet variables has been established, in the area most affected by the sovereign debt crisis, during the period itself. To this purpose, we conduct an analysis on a sample of PIIGS banks, compared to a sample of US ones, for the period of the Eurozone crisis, 2009-2013.The study shows the peculiarity of banking sector respect to other productive areas, in terms of relationship between balance sheet ratios and CDS spreads, in order to evaluate credit risk. This research confirms the supposed distortion of market informational efficiency, made by speculation: in particular we retain that speculation on PIIGS banks derived from sovereign debt crisis, while the American banks' one, was influenced mostly by the financial crisis, born just from the banks of this area. The paper also highlights the relevance of sovereign short-term rating, in terms of perception of the riskiness of market: specifically, we show how the banking sector has been deeply influenced by Eurozone crisis. In particular, we note a stronger influence of rating sovereign debt evaluation on PIIGS CDS spreads, respect to balance sheet ratios
The relationship between PIIGS banks’ balance sheet ratios and CDS spreads: an empirical analysis
ANGELINI, Eliana;ORTOLANO, ALESSANDRA
2016-01-01
Abstract
The paper investigates empirically what kind of relationship between banking sector's CDS spreads and balance sheet variables has been established, in the area most affected by the sovereign debt crisis, during the period itself. To this purpose, we conduct an analysis on a sample of PIIGS banks, compared to a sample of US ones, for the period of the Eurozone crisis, 2009-2013.The study shows the peculiarity of banking sector respect to other productive areas, in terms of relationship between balance sheet ratios and CDS spreads, in order to evaluate credit risk. This research confirms the supposed distortion of market informational efficiency, made by speculation: in particular we retain that speculation on PIIGS banks derived from sovereign debt crisis, while the American banks' one, was influenced mostly by the financial crisis, born just from the banks of this area. The paper also highlights the relevance of sovereign short-term rating, in terms of perception of the riskiness of market: specifically, we show how the banking sector has been deeply influenced by Eurozone crisis. In particular, we note a stronger influence of rating sovereign debt evaluation on PIIGS CDS spreads, respect to balance sheet ratiosFile | Dimensione | Formato | |
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