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The relief rally: A ninety-year event study of positive market reactions to U.S. Bank failures

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  • Manfre, Chris L.

Abstract

This paper examines equity market reactions to U.S. bank failures over a 90-year horizon (1934–2024). Utilizing event study methodology on the Dow Jones Industrial Average and S&P 500, we analyze the transition from historical contagion patterns to modern systemic risks. Our findings reveal a historical “relief rally” phenomenon, where bank failure announcements were followed by counterintuitively positive cumulative abnormal returns, despite significant increases in market volatility. However, cross-sectional regression analysis demonstrates a structural shift in the modern era: market sensitivity has evolved significantly, with recent failures precipitating more severe and persistent negative drags on the broader indices. By controlling for bank funding structures, event clustering, and broader market momentum, this research identifies a measurable increase in systemic interconnectivity. These results offer a nuanced understanding of how regulatory shifts and investor psychology have transformed the impact of bank failures on the modern financial landscape.

Suggested Citation

  • Manfre, Chris L., 2026. "The relief rally: A ninety-year event study of positive market reactions to U.S. Bank failures," The North American Journal of Economics and Finance, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:ecofin:v:85:y:2026:i:c:s1062940826000975
    DOI: 10.1016/j.najef.2026.102675
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