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Regulator Communication and Market Confidence in Difficult Times: Lessons from the Great Financial Crisis

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  • Paul Gower

    (University of Warwick, United Kingdom)

  • Florian Meier

    (University of the West of England, United Kingdom)

  • Karl Shutes

    (Coventry University, United Kingdom)

Abstract

Communication with financial markets is an important task carried out by financial market supervisory bodies. In times of crisis, this can contribute to spreading confidence and calming markets. In light of the 10th anniversary of the last financial crisis, we examine the effect the UK Financial Services Authority (FSA), as the financial market regulator during that period, had on market confidence. Our aim is to derive lessons to aid the current supervisor in potential future crises. Analyzing the period 2006-2009, we find that both more positivity and uncertainty in tone in communications could either reduce or increase stock market volatility, depending on the type of communication and communicator. Further analysis also shows distinct impacts on short-term and long-term market volatility. The findings highlight the importance of considering source and type of communication when decisions on who communicates with the market are made. These results can be of use for any regulatory authority that communicates with financial markets to increase effectiveness of their messages.

Suggested Citation

  • Paul Gower & Florian Meier & Karl Shutes, 2019. "Regulator Communication and Market Confidence in Difficult Times: Lessons from the Great Financial Crisis," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 7(4), pages 1-24.
    • Handle: RePEc:ejn:ejefjr:v:7:y:2019:i:4:p:1-24
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    References listed on IDEAS

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