Investing in Crises

Luc Laeven, Matthew Baron, Julien Penasse and Yevhenii Usenko

No 15858, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We investigate asset returns around banking crises in 44 advanced and emerging economies from 1960 to 2018. In contrast to the view that buying assets during banking crises is a profitable long-run strategy, we find returns of equity and other asset classes generally underperform after banking crises. While prices are depressed during crises and partially recover after acute stress ends, consistent with theories of fire sales and intermediary-based asset pricing, we argue that investors do not fully anticipate the consequences of debt overhang, which result in lower long-run dividends. Our results on bank stock underperformance suggest that government-funded bank recapitalizations can often lead to substantial taxpayer losses.

Keywords: Investments; Financial crises; Returns; Fire sales (search for similar items in EconPapers)
JEL-codes: G11 G14 G15 G41 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP15858 (application/pdf)

Related works:
Working Paper: Investing in crises (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15858

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15858

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().