Bank Bailouts: REITs and their Performance as Financial Stock

摘要

This study focuses on the implications of bank bailouts on the risk and return performance of REITs and other financial stocks. Previous evidence on monetary policy finds positive value effects on REITs when federal fund rates are decreased in order to strengthen the market’s liquidity pool. Bank bailouts can also be seen as a positive monetary shock to capital markets as government intervention restores bank liquidity and thus market liquidity. However, empirical evidence on moral hazard shows that bailing out banks may increase risky behavior and benefit relatively risky assets. Therefore, we expect REITs as hard assets to underperform the market on a short term basis. In fact we find supporting evidence i.e. negative abnormal returns and beta risk increases for REITs around bank bailout announcements. This extends previous research on bank failures and REIT returns where positive abnormal REIT returns around bank failures identify REITs as a safe haven in times of market uncertainty. Furthermore we complete our research by investigating other financial stocks, finding unique results.