Turkish currency crisis – Spillover effects on European banks

Ofer Arbaa, Eva Varon

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

We analyze stock price reactions of the largest listed banks across 9 countries in Europe to the currency crisis in Turkey, on August 10, 2018. We find a statistically significant two-day cumulative abnormal return of −2.0% for the European banks, excluding banks of Turkey, using the Fama-French five-factor asset pricing model. We identify more severe stock responses in banks that have a recent increase in leverage or a decrease in liquidity or profitability. Results indicate that banks of Turkey, Greece, Netherlands, Italy, Spain, Germany and France are significantly influenced by possible loan defaults. German, French and Dutch banks could be vulnerable to the extent that their economies will support the weaker EU banks. UK and Switzerland should be immune to these pressures and therefore their banks are found relatively stable.

Original languageEnglish
Pages (from-to)372-378
Number of pages7
JournalBorsa Istanbul Review
Volume19
Issue number4
DOIs
StatePublished - 1 Dec 2019
Externally publishedYes

Keywords

  • Currency crisis
  • European banks
  • Event study
  • Fama-french five-factor model

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