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Wall Street’s bailout bet: Market reactions to house price releases in the presence of bailout expectations

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  • Löffler, Gunter
  • Posch, Peter N

Abstract

The rise and subsequent collapse of US house prices was one of the factors underlying the recent financial crisis. One could expect that the crisis brought increased attention to the housing market and thus led to stronger market reactions to house price news. We find that reactions indeed change, but with a peculiar twist: from September 2008 on, good news from the housing market are associated with falling US stock prices, and vice versa. The likely explanation, for which we provide cross-sectional evidence, is that falling house prices increased the market’s trust in a government bailout, thereby increasing market valuations of firms that were expected to benefit from government rescue measures.

Suggested Citation

  • Löffler, Gunter & Posch, Peter N, 2013. "Wall Street’s bailout bet: Market reactions to house price releases in the presence of bailout expectations," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5147-5158.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5147-5158
    DOI: 10.1016/j.jbankfin.2013.01.041
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    1. Rafiq, Shuddhasattwa, 2022. "How did house and stock prices respond to different crisis episodes since the 1870s?," Economic Modelling, Elsevier, vol. 114(C).
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, vol. 98(2), pages 339-344, May.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 US Sub-Prime Financial Crisis So Different?: An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299.
    4. Birz, Gene, 2017. "Stale economic news, media and the stock market," Journal of Economic Psychology, Elsevier, vol. 61(C), pages 87-102.

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    More about this item

    Keywords

    Financial crisis; Announcement effects; House prices; Bailout;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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