EVIDENCE ON THE IMPACT OF THE TROUBLED ASSETS RELIEF PROGRAM ON STOCK RETURNS

Mthuli Ncube () and Kjell Hausken

The International Journal of Business and Finance Research, 2019, vol. 13, issue 1, 1-30

Abstract: In response to the global financial crisis which began in 2008, the US government launched the Troubled Assets Relief Program (TARP), the largest government bailout in US history. TARP was controversial and publicly unpopular. This article examines the market responses to the TARP-related events as reflected in stock returns. Our empirical strategy permits a counterfactual interpretation of the data and provides empirical evidence to answer the question what would have happened to those banks that did in fact receive bailout funds if they had not received the bailout. We find that the market responded favorably to the announcement of TARP, which suggests that the bailout program launch helped restore investors’ confidence in the financial system. However, the market reacted negatively to the receipt of TARP bailout funds. Hence, instead of ensuring certification, receiving bailouts generated an adverse market signal. Our empirical evidence suggests that TARP receipt rather than the announcement by banks to accept TARP funds was essential

Keywords: TARP Bailout; Abnormal Returns; Tail Risk; Financial Crisis; Counterfactual (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ibf:ijbfre:v:13:y:2019:i:1:p:1-30

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