Impact of News of the Subprime Crisis on Bank Stock Returns

The effect of news of the emerging subprime crisis on bank stock returns is investigated in this report. From March 2007 to September 2008, the report covered a wide range of incidents, including Fed rate cuts and corporations reporting massive losses and/or filing for bankruptcy. The research technique used was event analysis methodology. The independent-samples t-test is used to compare the ACAR (Average Cumulative Abnormal Return) of a sample of bank stocks taken before and after the press.The study's findings suggest that there was no clear trend of reaction to news of the subprime crisis as it progressed, and that bank stocks may not have been impacted as much as the broader market by the subprime crisis. The initial news about the housing market bubble, in the period between the first Fed rate cut and the climax, the bankruptcy of Lehmann Brothers, both seem to have had a much greater impact on the overall market than the banking sector stocks.

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