SPILL OVER EFFECTS OFOPERATIONAL LOSS EVENTS WITHINTHE SOUTHAFRICAN BANKINGSECTOR

This study analysedreturn volatility afteroperational loss announcementsconcerningmajorSouthAfricanbanksduring 2000-2014. The sample ofbanksthat experienced losses over the sample periodwascompared with a sample ofunaffected banks, the banking index and the stock market index,to identifywhether theoperational loss announcements had spill over effects on the wholeSouthAfricanbankingsector. Daily share returns were analysed using event studymethodology andthe weighted moving average (EWMA)model. On onehand,the results showed thattheoperational loss events for two of the affectedbanksexerted noeffectonthe number ofunaffectedbanks. On the other hand,theoperational loss events forthetwo remainingbankswere found to have spill overeffects.The returnsof theunaffectedbanksas well as thewhole banking sectorwere effected,which led to systemic risk.However,results revealed thatoperational losses in the South African banks did not spill over to the stockmarket.Overall, the findings indicatethat the effect of operational losses maydepend on the level of integration between individual banks