Stock market’s reactions to revelation of tax evasion: an empirical assessment

Additionally to the financial crisis causing a world recession, Liechtenstein’s financial sector has been challenged by the so-called “Zumwinkel-Affair”, when a whistle-blower sold data of hundreds of tax evaders to international tax authorities. This paper investigates the impact of this affair, separated from the financial crisis, on the daily stock prices of banks from Liechtenstein. An “unconventional” augmented GARCH-model (labelled as “augmented amalGARCH”), which outperforms conventional models, is introduced and analyses the dynamical pattern and other influences on risk and average performance. Besides other findings, it can be concluded that the Zumwinkel-Affair had an (accumulating) effect on risk of stocks, but surprisingly no impact on average stock returns could be detected.