Stock Market Reactions of UK Banks During the COVID-19 Crisis

An Event Study

Bachelor Thesis , 2020 , 48 Pages , Grade: 1,3

Business economics - Banking, Stock Exchanges, Insurance, Accounting

This thesis aims to determine whether bad-news events resulted in a negative reaction and good-news in a positive reaction in the United Kingdom banking sector, or if there was no significant abnormal reaction at all.

To address this research question, an event study was conducted for four events investigating 11 banks in the United Kingdom as securities and the FTSE 350 as a market index. The results showed an overall significant abnormal reaction; however only bad-news events result in significantly negative abnormal returns, while good-news events did not show consistent results.

COVID-19 hit the world economy very hard in nearly every sector. As financial intermediaries, banks face the difficult task dealing with a shrinking economy. Previous studies have shown that events during the COVID-19 pandemic have significantly influenced the stock market. In the financial crisis of 2007 to 2009, bad-news events resulted in a negative abnormal return and good-news events resulted in positive abnormal returns in the banking sector in the United Kingdom.

Summary of Contents

Summary of Contents

List of Abbreviations

List of Figures

List of Tables

1 Introduction

2 Hypothesis development
2.1 Literature review
2.1.1 Theoretical framework
2.1.1.1 Market reactions to news
2.1.1.2 Influence of major events on the stock market
2.1.2 Function of banks
2.1.3 The banking system in the UK
2.1.4 Previous studies on the effect of COVID-19 on financial markets
2.2 Global financial of crisis 2007 to 2009
2.2.1 Timeline and causes
2.2.2 Event study description
2.2.3 Event study results
2.3 Hypothesis formulation

3 Event study methodology
3.1 Definition
3.2 Timeline
3.3 Calculating returns
3.4 Measuring normal returns
3.4.1 Constant mean return model
3.4.2 Market model
3.4.3 Economic models
3.5 Abnormal returns
3.5.1 Calculation of abnormal returns with the market model
3.5.2 Calculation of cumulative and average returns
3.6 Significance test
3.7 Robustness checks

4 Event study data
4.1 Historical data
4.2 Event dates

5 Empirical results
5.1 Bad-news events
5.2 Good-news events
5.3 Hypothesis analysis

6 Conclusion

List of Appendices

Appendix

References

• College: University of Applied Sciences Ludwigshafen
• Grade: 1,3
• Author: Christian Gaa (Author)
• Publication Year: 2020
• Pages: 48
• Catalog Number: V974203
• ISBN (eBook): 9783346321404
• ISBN (Book): 9783346321411
• Language: English
• Tags: Event Study, eventstudy, corona, banks, mackinley, economics, finance, bachelor, covid, covid-19, uk, uk banks, united kingdom