Investing in crises

Matthew Baron, Luc Laeven, Julien Penasse and Yevhenii Usenko

No 2548, Working Paper Series from European Central Bank

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. JEL Classification: G11, G14, G15, G41

Keywords: financial crises; fire sales; investments; returns (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-ban, nep-cwa and nep-fmk
Note: 261593
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Investing in Crises (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20212548

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