Arbeitspapier

Investing in crises

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.

ISBN
978-92-899-4548-6
Language
Englisch

Bibliographic citation
Series: ECB Working Paper ; No. 2548

Classification
Wirtschaft
Portfolio Choice; Investment Decisions
Information and Market Efficiency; Event Studies; Insider Trading
International Financial Markets
Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets‡
Subject
investments
financial crises
returns
fire sales

Event
Geistige Schöpfung
(who)
Baron, Matthew
Laeven, Luc
Pénasse, Julien
Usenko, Yevhenii
Event
Veröffentlichung
(who)
European Central Bank (ECB)
(where)
Frankfurt a. M.
(when)
2021

DOI
doi:10.2866/946664
Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Baron, Matthew
  • Laeven, Luc
  • Pénasse, Julien
  • Usenko, Yevhenii
  • European Central Bank (ECB)

Time of origin

  • 2021

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