Impact of News of the Subprime Crisis on Bank Stock Returns

Main Article Content

Mihir Dash

Abstract

This study examines the impact of news of the unfolding subprime crisis on bank stock returns. The study period covered is from Mar. 2007 to Sept. 2008, covering a variety of events such as Fed rate cuts and companies announcing huge losses and/or filing for bankruptcy. The methodology adopted in the study is the event study methodology. The ACAR (Average Cumulative Abnormal Return) of a sample of bank stocks taken before and after the news are compared using the independent-samples t-test. The results of the study indicate that there was no consistent pattern of reaction to the news of the subprime crisis as it unfolded, and that bank stocks may not have been affected by the subprime crisis to the same extent as the overall market. In particular, the initial news about the housing market bubble, in between the first Fed rate cut, and the climax, the bankruptcy of Lehmann Brothers, all seem to have affected the overall market much more than the banking sector stocks.

Keywords:
Subprime crisis, event study methodology, ACAR, independent-samples t-test

Article Details

How to Cite
Dash, M. (2019). Impact of News of the Subprime Crisis on Bank Stock Returns. Asian Journal of Economics, Finance and Management, 1(1), 35-45. Retrieved from https://globalpresshub.com/index.php/AJEFM/article/view/749
Section
Case Report