Explaining bank stock performance with crisis sentiment |
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| Institution: | 1. Kelley School of Business, Indiana University, United States;2. Krannert School of Management, Purdue University, United States;3. Jones School of Business School, Rice University, United States;4. China Academy of Finance Research, Shanghai Advanced Institute of Finance, China;1. University of Rome Tor Vergata, Department of Economics and Finance, Via Columbia 2, Italy;2. SDA Bocconi, School of Management, Via Bocconi 8, Italy;3. University of Rome III, Department of Business Studies, Via S. D’Amico 77, Italy;4. University of Parma, Department of Economics, Via Kennedy 6, Italy;5. Tilburg University, Finance Department, Warandelaan 2, The Netherlands;1. Auckland University of Technology, New Zealand;2. Vrije Universiteit Amsterdam, The Netherlands;3. Tinbergen Institute, The Netherlands;1. College of Business, Korea Advanced Institute of Science and Technology (KAIST), 85 Heogiro, Dongdaemoon-gu, Seoul 130-722, Republic of Korea;2. School of Economics, College of Business and Economics, Chung-Ang University, 84 Heukseok-ro, Dongjak-gu, Seoul 156-756, Republic of Korea |
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| Abstract: | Using search volume data on crisis-related queries from Google Trends, we estimate three different measures of market-level and individual crisis sentiment. We find that the stock performance of international banks during the period Q1 2004 to Q4 2012 was significantly driven by investors’ irrational market-wide crisis sentiment. Our empirical analysis shows that irrational market-wide crisis sentiment leads investors to devalue bank stocks irrespective of idiosyncratic or macroeconomic fundamentals. Comparing this finding with results for a sample of non-financial companies, we find evidence in support of the notion that the effect of crisis sentiment on stock returns is strongest in the absence of implicit bailout guarantees. |
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| Keywords: | Financial crisis Bank performance Investor sentiment |
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