An Intervention Analysis Model Examining the Effects of the Capital Purchase & Targeted Investment Programs on the Stock Prices of U.S. Banking Institutions

Abstract

This thesis uses an Intervention Analysis as an econometric procedure to determine what effect, if any, government capital injection had on stock prices. More specifically, we look at the effect that the initiation of the Capital Purchase Program and the Targeted Investment Program had on the share prices of U.S. banking institutions. The Intervention Analysis will suggest whether or not these bailouts had a significant effect on these stock prices. If there does seem to be a significant effect, the analysis will suggest the magnitude of the shock as well as the length of this shock’s persistence. We can then look at how these results may give some insight into the U.S. economy as a whole. This thesis evaluates a wide variety of different banks so that we can try and make generalizations towards the bailout’s effect on share prices of the banking industry as a whole. As it turns out, the Intervention Analysis involving these many banks suggests that the introduction of the Capital Purchase Program as well as the Targeted Investment Program did cause a significant drop in the share prices of U.S. banking institutions. This model also suggests that the effected stocks will take an extremely long time to recover from this specific shock.