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The Effects of the Real Estate Crisis on Institutional Stock Prices


  • Chinmoy Ghosh
  • Randall S. Guttery
  • C.F. Sirmans


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. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • Chinmoy Ghosh & Randall S. Guttery & C.F. Sirmans, 1997. "The Effects of the Real Estate Crisis on Institutional Stock Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(4), pages 591-614.
  • Handle: RePEc:bla:reesec:v:25:y:1997:i:4:p:591-614

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    References listed on IDEAS

    1. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
    2. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242.
    3. Huberman, Gur & Kandel, Shmuel & Stambaugh, Robert F, 1987. " Mimicking Portfolios and Exact Arbitrage Pricing," Journal of Finance, American Finance Association, vol. 42(1), pages 1-9, March.
    4. Chamberlain, Gary, 1983. "Funds, Factors, and Diversification in Arbitrage Pricing Models," Econometrica, Econometric Society, vol. 51(5), pages 1305-1323, September.
    5. Grinblatt, Mark & Titman, Sheridan, 1987. "The Relation between Mean-Variance Efficiency and Arbitrage Pricing," The Journal of Business, University of Chicago Press, vol. 60(1), pages 97-112, January.
    6. W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354.
    7. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. " Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March.
    8. Sheridan Titman & Arthur Warga, 1986. "Risk and the Performance of Real Estate Investment Trusts: A Multiple Index Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(3), pages 414-431.
    9. Crocker H. Liu & David J. Hartzell & Terry V. Grissom & Wylie Greig, 1990. "The Composition of the Market Portfolio and Real Estate Investment Performance," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(1), pages 49-75.
    10. David Hartzell & John S. Hekman & Mike E. Miles, 1987. "Real Estate Returns and Inflation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 617-637.
    11. Connor, Gregory & Korajczyk, Robert A., 1986. "Performance measurement with the arbitrage pricing theory : A new framework for analysis," Journal of Financial Economics, Elsevier, vol. 15(3), pages 373-394, March.
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    Cited by:

    1. Chinmoy Ghosh & Randall S. Guttery & C. F. Sirmans, 1998. "Contagion and REIT Stock Prices," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 389-400.
    2. Hui-Na Lin & Wo-Chiang Lee, 2015. "Threshold Effects in the Relationships of REITs and Other Financial Securities in Developed Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(3), pages 426-438, March.
    3. Okunev, John & Wilson, Patrick & Zurbruegg, Ralf, 2002. "Relationships between Australian Real Estate and Stock Market Prices--A Case of Market Inefficiency," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(3), pages 181-192, April.
    4. Elijah Brewer & William E. Jackson, 2002. "Inter-industry contagion and the competitive effects of financial distress announcements: evidence from commercial banks and life insurance companies," Working Paper Series WP-02-23, Federal Reserve Bank of Chicago.
    5. Chiuling Lu & Raymond So, 2005. "Return Relationships between Listed Banks and Real Estate Firms: Evidence from Seven Asian Economies," The Journal of Real Estate Finance and Economics, Springer, vol. 31(2), pages 189-206, September.

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