Evidence on the Impact of the Troubled Assets Relief Program on Stock Returns

The International Journal of Business and Finance Research, v. 13 (1) p. 1-30, 2019

30 Pages Posted: 23 Mar 2019

See all articles by Mthuli Ncube

Mthuli Ncube

Quantum Global Research Lab Ltd

Kjell Hausken

Stavanger University College

Date Written: 2019

Abstract

In response to the global financial crisis which began in 2008, the US government launched the Troubled Assets Relief Program (TARP), the largest government bailout in US history. TARP was controversial and publicly unpopular. This article examines the market responses to the TARP-related events as reflected in stock returns. Our empirical strategy permits a counterfactual interpretation of the data and provides empirical evidence to answer the question “what would have happened to those banks that did in fact receive bailout funds if they had not received the bailout.” We find that the market responded favorably to the announcement of TARP, which suggests that the bailout program launch helped restore investors’ confidence in the financial system. However, the market reacted negatively to the receipt of TARP bailout funds. Hence, instead of ensuring certification, receiving bailouts generated an adverse market signal. Our empirical evidence suggests that TARP receipt rather than the announcement by banks to accept TARP funds was essential.

Keywords: TARP Bailout, Abnormal Returns, Tail Risk, Financial Crisis, Counterfactual

JEL Classification: G18, G21, G28

Suggested Citation

Ncube, Mthuli and Hausken, Kjell, Evidence on the Impact of the Troubled Assets Relief Program on Stock Returns (2019). The International Journal of Business and Finance Research, v. 13 (1) p. 1-30, 2019, Available at SSRN: https://ssrn.com/abstract=3340141

Mthuli Ncube (Contact Author)

Quantum Global Research Lab Ltd ( email )

Kjell Hausken

Stavanger University College ( email )

PO Box 2557
N-4091 Stavanger
Norway

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