Abstract
We examine the impact of significant news events during the 2007–2008 financial crisis on the abnormal stock returns for portfolios of financial and real sector firms. We estimate financial crisis event announcement abnormal returns in the context of an asset-pricing model similar to Fama and French (J Financ Econ 33:3–56, 1993) and Carhart (J Finance 52:57–82, 1997). Our results document significant negative abnormal returns for the portfolio of non-financial firms in response to both crisis and intervention news, quantifying the significant spillover of financial market news to real sector stock returns. In contrast, while small financial firms also exhibit negative abnormal returns, larger financial institutions do not. In fact, some larger financial institutions, such as depository institutions, yield positive abnormal returns in response to some financial crisis and intervention event announcements. The results provide further evidence of the incorporation of financial sector news events into non-financial asset prices during financial crises and new evidence on the short-term impact of crisis and policy intervention news on both financial and real sector firms.
Similar content being viewed by others
Notes
Sorokina et al. (2013) provide a comprehensive review of the event study methodology in the context of the finance literature.
We also estimate our reported results using the more traditional ordinary least squares method with standard errors adjusted in the manner of Newey and West (1987) and our results are not materially affected.
References
Baur DG (2010) Financial contagion and the real economy. J Bank Finance 36(10):2680–2692
Berger A, Roman R (2015) Did TARP banks get competitive advantages? J Financ Quant Anal 50(6):1199–1236
Berger A, Black L, Bouwman C, Dlugosz J (2014) The Federal Reserve’s discount window and TAF programs. Pushing on a string? Working paper
Carhart MM (1997) On persistence in mutual fund performance. J Finance 52:57–82
Cornett M, Li L, Tehranian H (2013) The performance of banks around the receipt and repayment of TARP funds: over-achievers versus under-achievers. J Bank Finance 37:730–746
Fama EF, French KR (1993) Common risk factors in the returns of stocks and bonds. J Financ Econ 33:3–56
Helwege J, Zhang G (2016) Financial firm bankruptcy and contagion. Rev Finance 20(4):1321–1362
Hippler W, Hassan MK (2015) The impact of macroeconomic stress on the U.S. Financial Sector. J Financ Stab 21:61–80
Hoffman M (2012) The political economy of TARP: a public opinion approach. Working paper
Huber PJ (1973) Robust regression: asymptotics, conjectures, and Monte Carlo. Ann Stat 1:799–821
Ivashina V, Scharfstein (2010) Bank lending during the financial crisis of 2008. J Financ Econ 97:319–338
Kabir MH, Hassan MK (2005) The near-collapse of LTCM, US Financial Stock Returns, and the Fed. J Bank Finance 29:441–460
Li S, Madura J, Richie N (2013) Bond market response to the collapse of prominent investment banks. Financ Rev 48:645–670
Longstaff FA (2010) The subprime credit crisis and contagion in financial markets. J Financ Econ 97:436–450
Mamun A, Hassan MK, Johnson M (2010) How did the Fed do? An empirical assessment of the Fed’s new initiatives in the financial crisis. Appl Financ Econ 20(1–2):15–30
Newey WK, West KD (1987) A simple, positive, semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica 55(3):703–708
Ramcharan R, Verani S, Van Den Heuvel SJ (2016) From Wall Street to Main Street: the impact of the financial crisis on consumer credit supply. J Finance 71(3):1323–1355
Safa MF, Hassan MK, Maroney N (2012) AIG’s announcements, Fed’s innovation, contagion and systemic risk in the financial industries. Appl Financ Econ 23:1337–1348
Sorokina N, Thornton JH (2016) Reactions of equity markets of recent financial reforms. J Econ Bus 87:50–69
Sorokina N, Booth DE, Thornton JH (2013) Robust methods in event studies: empirical evidence and theoretical implications. J Data Sci 11:575–605
Timeline: Key events in financial Crisis. USA Today. Sept. 8, 2013. http://www.usatoday.com/story/money/business/2013/09/08/chronology-2008-financial-crisis-lehman/2779515/
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Hippler, W.J., Hossain, S. & Hassan, M.K. Financial crisis spillover from Wall Street to Main Street: further evidence. Empir Econ 56, 1893–1938 (2019). https://doi.org/10.1007/s00181-018-1513-9
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00181-018-1513-9