Financial crisis spillover from Wall Street to Main Street: further evidence

Abstract

We examine the impact of significant news events during the 2007–2008 financial crisis on the abnormal stock returns for portfolios of financial and real sector firms. We estimate financial crisis event announcement abnormal returns in the context of an asset-pricing model similar to Fama and French (J Financ Econ 33:3–56, 1993) and Carhart (J Finance 52:57–82, 1997). Our results document significant negative abnormal returns for the portfolio of non-financial firms in response to both crisis and intervention news, quantifying the significant spillover of financial market news to real sector stock returns. In contrast, while small financial firms also exhibit negative abnormal returns, larger financial institutions do not. In fact, some larger financial institutions, such as depository institutions, yield positive abnormal returns in response to some financial crisis and intervention event announcements. The results provide further evidence of the incorporation of financial sector news events into non-financial asset prices during financial crises and new evidence on the short-term impact of crisis and policy intervention news on both financial and real sector firms.