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

Gunter Löffler and Peter N Posch

Journal of Banking & Finance, 2013, vol. 37, issue 12, 5147-5158

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.

Keywords: Financial crisis; Announcement effects; House prices; Bailout (search for similar items in EconPapers)
JEL-codes: G14 H32 H63 P48 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5147-5158