Bank credit risk events and peers' equity value

This paper documents a negative cross-transmission of bank-idiosyncratic credit risk events to the equity value peers comprising other banks, insurance and real estate firms inter alia. Large jumps in idiosyncratic component bank CDS spreads significantly reduce peers, particularly on event day. The externality does not hinge “information connectedness” between two entities as proxied by characteristics such common core line business, country or region, inter-country legal tradition. is stronger turmoil market conditions when risk-aversion levels are higher and/or investors subject pessimism. more fragile profile peer firm prior cross-transmission. findings lend support wake-up call paradigm at micro level, insightful towards better assessment vulnerability financial system.