Investor reactions to major events in the sub-prime mortgage crisis

Date
2022-06
Advisor
Supervisor
Co-Advisor
Co-Supervisor
Instructor
Source Title
Food Packaging and Shelf Life
Print ISSN
Electronic ISSN
2214-2894
Publisher
Elsevier
Volume
32
Issue
Pages
100823-1 - 100823-7
Language
English
Type
Article
Journal Title
Journal ISSN
Volume Title
Series
Abstract

We investigate how investor perceptions about the financial health of twenty-seven bank holding companies that controlled eighty percent of US banking assets at year-end 2006 changed during major events leading to the collapse of Lehman Brothers. We use the event study method to investigate whether and to what extent investors priced major events before the Lehman bankruptcy. Abnormal returns on the event days range from -9.25 to 4.80%. When the Federal Reserve Bank of New York is authorized to lend to Fannie Mae and Freddie Mac on 13 July 2008, sample bank holding companies average the lowest abnormal returns of -9.25. When the Federal Housing Agency places Fannie Mae and Freddie Mac under government conservatorship on 7 September 2008, abnormal returns average the highest at 4.80. The significant abnormal returns indicate that investors price the information released in the pre-crisis events.

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Keywords
Financial crisis, Lehman Brothers' Bankruptcy, Sub-prime Mortgage crisis
Citation
Published Version (Please cite this version)