Working Paper: NBER ID: w7529
Authors: Bongchan Kho; Dong Lee; Ren M. Stulz
Abstract: This paper investigates the impact on bank stock prices of emerging market currency crises and bailouts. The stock market distinguishes between banks with exposure to a crisis country and other banks. In general, banks with exposures to a crisis country are affected adversely by currency events and positively by bailouts. Other banks are mostly unaffected by events in countries experiencing a crisis. The paper uses the impact of the LTCM crisis on bank stock prices to put the emerging market events in perspective. The LTCM crisis had no significant contagion effects in the banking sector either, but banks that participated in the LTCM rescue experienced negative stock returns when the rescue was announced.
Keywords: bank stock prices; currency crises; bailouts; LTCM crisis
JEL Codes: F3; F33; F43; F4; F42; G15; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| currency crises in emerging markets (F31) | decreased stock prices for exposed banks (E44) |
| bailouts (H81) | enhanced stock values of exposed banks (E44) |
| involvement in the LTCM rescue (G33) | decreased stock prices for exposed banks (E44) |