The Stock Market Impact of Government Interventions on Financial Services Industry Groups: Evidence from the 2007-2009 Crisis

We examine the market reaction and shift in risk from nine prominent government interventions in response to the crisis between February 2007 and July 2009 on four types of institutions: banks, savings and loan associations (S&Ls), insurance companies, and real estate investment trusts (REITs). Overall, with the exception of the Troubled Assets Repurchase Program (TARP), the interventions were wealth-decreasing and risk-increasing events for financial institutions. Leveraged firms and firms with higher trading volumes earn significantly lower abnormal returns. For both during- and post-crisis periods, larger firms experience increases in systematic risk; non-U.S. firms experience lower changes in systematic risk.