National Culture and Banks Stock Volatility

We examine the effect of national culture on the vulnerability of banks to common shocks, which has not been explored previously, by analyzing the stock market volatility of major European Banks during the Covid-19 pandemic. Focusing on differences in uncertainty avoidance and individualism levels across multiple European countries, we investigate changes in bank volatility during the downswing and upswing of the business cycle. Our results show that during the peak of the crisis, low uncertainty avoidance reduces the impact of Covid-19-related cases on the volatility of European banking stocks. However, as the pandemic progresses and vaccinations become widespread, the influence of uncertainty avoidance on banks' sensitivity to the pandemic fades. We also observe a stabilizing effect of high individualism on banks' volatility, but only after the start of vaccinations.