AIG’s Announcements, Fed’s Innovation, Contagion and Systemic Risk in the Financial Industry

27 Pages Posted: 1 Nov 2018

See all articles by Mohammad Faisal As Safa

Mohammad Faisal As Safa

University of New Orleans - College of Business Administration - Department of Economics and Finance

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Neal Maroney

University of New Orleans - College of Business Administration

Date Written: 2011

Abstract

This paper aims at testing the effect of AIG’s loss announcements and Federal Reserve’s subsequent innovation on the financial industry. An analysis of seemingly unrelated regression on the returns of four industries- banking, insurance, brokerage firms and savings and loan Institutions (S&Ls) for the period September 5, 2007 to December 31, 2008 reveals that, the Federal Reserve’s announcement on September 16, 2008 and October 8, 2008 to pledge $85 billion and $37.8 billion, respectively has the most impact on the financial sector. All the four industries are also sensitive towards any shock in the short run, long run interest rate and the market return. The market experiences significant contagion and incremental systemic risk after the bailout by the Federal Reserve but we do not find any significant evidence in support of the Federal Reserve’s perception of AIG to be too-big-to-fail.

Keywords: AIG, Financial Crisis, Bailout, Too-Big-to-Fail, Contagion, Systemic Risk

JEL Classification: G21, G29

Suggested Citation

Safa, Mohammad Faisal As and Hassan, M. Kabir and Maroney, Neal, AIG’s Announcements, Fed’s Innovation, Contagion and Systemic Risk in the Financial Industry (2011). Available at SSRN: https://ssrn.com/abstract=3263011 or http://dx.doi.org/10.2139/ssrn.3263011

Mohammad Faisal As Safa

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
438 Kirschman Hall
New Orleans, LA 70148
United States

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Neal Maroney

University of New Orleans - College of Business Administration ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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