The Effects of the Real Estate Crisis on Institutional Stock Prices

REAL ESTATE ECONOMICS, Vol. 25 No. 4, Winter 1997

Posted: 24 Oct 1997

See all articles by Chinmoy Ghosh

Chinmoy Ghosh

University of Connecticut - Department of Finance

Randall S. Guttery

University of North Texas - Department of Finance, Insurance Real Estate and Law

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law

Abstract

This article investigates the contagious movement of financial institutions' common stock prices in response to real estate news. The basic hypothesis is that because real estate assets are traded infrequently, the market has incomplete information about their true value. The stock price reaction by banks, thrifts and insurance companies to announcements of poorly performing real estate portfolios is studied. Consistent with the hypothesis, significantly negative reactions obtain, both within and across industries, to these announcements. Reflecting the differential regulatory environment and disclosure policies, insurance companies, in general, react more strongly to adverse real estate news. Also, the price reaction of an individual firm is significantly associated with the level of its real estate exposure.

JEL Classification: R0

Suggested Citation

Ghosh, Chinmoy and Guttery, Randall S. and Sirmans, C. F., The Effects of the Real Estate Crisis on Institutional Stock Prices. REAL ESTATE ECONOMICS, Vol. 25 No. 4, Winter 1997, Available at SSRN: https://ssrn.com/abstract=11287

Chinmoy Ghosh (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

Randall S. Guttery

University of North Texas - Department of Finance, Insurance Real Estate and Law ( email )

Denton, TX 76203
United States
940-565-3073 (Phone)
940-565-4234 (Fax)

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

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