THE EFFECTS OF THE REAL-ESTATE CRISIS ON INSTITUTIONAL STOCK-PRICES

This article investigates the contagious movement of financial institu tions' 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 sto ck price reaction by banks, thrifts and insurance companies to announc ements of poorly performing real estate portfolios is studied. Consist ent 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 new s. Also, the price reaction of an individual firm is significantly ass ociated with the level of its real estate exposure.