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Does the Single Supervisory Mechanism Reduce Overall Risk in the European Stock Market?

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  • Pilar Abad
  • Myriam García‐Olalla
  • M. Dolores Robles

Abstract

The aim of this paper is to investigate the economic impact of the single supervisory mechanism (SSM) as measured by the reaction of the major stock market indexes of the European Union (EU) countries. To capture the market reaction, we analyse the impact of news related to the development and implementation of the SSM on the broad stock indexes and their banking and non‐financial sector indexes. Moreover, we not only investigate stock returns, but also study the impact on systematic risk, overall risk and the degree of integration among markets. The results of an event study and stability tests show significant market reactions that decrease value and increase risk for some of the news, specifically the beginning and end of the process. The main effects are heterogeneous across different EU countries. The observed response is also more evident in the banking sector than in the non‐financial sector.

Suggested Citation

  • Pilar Abad & Myriam García‐Olalla & M. Dolores Robles, 2020. "Does the Single Supervisory Mechanism Reduce Overall Risk in the European Stock Market?," Global Policy, London School of Economics and Political Science, vol. 11(S1), pages 39-51, January.
    • Handle: RePEc:bla:glopol:v:11:y:2020:i:s1:p:39-51
    DOI: 10.1111/1758-5899.12755
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    Cited by:

    1. Karel Janda & Oleg Kravtsov, 2020. "Banking Supervision and Risk-Adjusted Performance inthe Host Country Environment," FFA Working Papers 3.001, Prague University of Economics and Business, revised 19 Nov 2020.
    2. Camilo J. Vázquez‐Ordás & Myriam García‐Olalla, 2020. "The Differential Impact of Brexit on Banking: UK vs. Europe," Global Policy, London School of Economics and Political Science, vol. 11(5), pages 569-577, November.
    3. Will Bartlett, 2023. "The performance of politically connected firms in South East Europe: state capture or business capture?," Post-Communist Economies, Taylor & Francis Journals, vol. 35(4), pages 351-367, May.
    4. Avgeri, I. & Dendramis, Y. & Louri, H., 2021. "The Single Supervisory Mechanism and its implications for the profitability of European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    5. Myriam García-Olalla & Manuel Luna, 2021. "Market reaction to supranational banking supervision in Europe: Do firm- and country-specific factors matter?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(4), pages 947-975, November.

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