Abnormal stock returns in Greece during the Cypriot banking crisis

Date03 May 2016
DOIhttps://doi.org/10.1108/JMLC-04-2015-0015
Published date03 May 2016
Pages122-129
AuthorSpyridon Repousis
Subject MatterAccounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime
Abnormal stock returns in
Greece during the Cypriot
banking crisis
Spyridon Repousis
Department of Economics, University of Peloponnese, Greece
Abstract
Purpose – The purpose of this paper is to examine the impact of the Cypriot banking crisis in specic
bank stocks’ prices traded in the Athens Stock Exchange.
Design/methodology/approach – In the present study, event study methodology has been used.
The basis of the event study is to examine the returns derived from the stock prices of the relevant banks
before March 15, 2013.
Findings – This study focuses on three banks, Bank of Cyprus, Cyprus Popular Bank and Piraeus
Bank, and nds abnormal stock returns during the ten-day period before the event date (announcement
of prohibition and put under suspension trading of all movable securities of Bank of Cyprus and Cyprus
Popular Bank). Also, an interesting matter is that during the estimation period and in specic dates,
such as October 18, 22 and 23, 2012, a high volume of stocks trading took place in Bank of Cyprus and
Cyprus Popular Bank.
Originality/value – To the best of the author’s knowledge, this is the rst study examining it.
Keywords Greece, Stock returns, Cyprus, Event study, Banks
Paper type Research paper
1. Cypriot banking crisis
During 2013, the banking system of Cyprus faced an unprecedented crisis that
necessitated drastic measures to confront it. On March 21, 2013, the Governing Council
of the European Central Bank (ECB) decided to:
maintain the level of emergency liquidity assistance (ELA) in Bank of Cyprus and
Laiki Bank, that is to keep ELA at that date’s outstanding amount until March 25,
2013; and
continue providing ELA after the said date on the strict condition that a European
Union (EU) and International Monetary Fund (IMF) program would enter into
force to ensure the solvency of the Cypriot banks.
The ECB’s decisions brought Laiki Bank and Bank of Cyprus, the two largest and
systemic banks of Cyprus, near a possible collapse with inestimable consequences for
the banking system and the country’s economy. The collapse of the banks would have
activated the deposit protection scheme whose reserves could only cover a very small
portion of the insured deposits (including deposits in the foreign branches of Cypriot
banks), therefore passing on this obligation to the Republic of Cyprus. Furthermore, it
would have necessitated an immediate repayment of the ELA obtained by the two
JEL classication – F30, G14, G15
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
JMLC
19,2
122
Journalof Money Laundering
Control
Vol.19 No. 2, 2016
pp.122-129
©Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-04-2015-0015

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