Further Evidence on Equity Market Contagion: The Fslic's Solvency and the Liquidity Crisis of Financial Corporation of America

Posted: 3 Nov 1998

See all articles by Elizabeth S. Cooperman

Elizabeth S. Cooperman

University of Colorado Denver

Glenn A. Wolfe

University of Toledo - College of Business Administration - Department of Finance and Business Economics

James A. Verbrugge

University of Georgia - Department of Banking and Finance

Winson B. Lee

University of Colorado at Denver

Abstract

Whether pure contagion is more likely to occur when a federal deposit insurer is severely undercapitalized is an unanswered question. This paper provides evidence on this issue by examining the stock market reaction of savings and loans (S&Ls) to the crisis of Financial Corporation of America (FCA) in 1984, when the Federal Savings and Loan Insurance Corporation was fiscally unsound. Consistent with a contingent insurance guarantee hypothesis, the results show large, significant negative abnormal returns (ARs) for a portfolio of high insured deposit S&Ls during FCA's crisis.

JEL Classification: F31, G21, G28

Suggested Citation

Cooperman, Elizabeth S. and Wolfe, Glenn A. and Verbrugge, James A. and Lee, Winson B., Further Evidence on Equity Market Contagion: The Fslic's Solvency and the Liquidity Crisis of Financial Corporation of America. Available at SSRN: https://ssrn.com/abstract=127812

Elizabeth S. Cooperman (Contact Author)

University of Colorado Denver ( email )

Campus Box 165, P.O. Box 173364
Denver, CO 80217
United States
303-315-8422 (Phone)
303-315-8084 (Fax)

Glenn A. Wolfe

University of Toledo - College of Business Administration - Department of Finance and Business Economics ( email )

Toledo, OH 43606
United States

James A. Verbrugge

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-3657 (Phone)

Winson B. Lee

University of Colorado at Denver

Box 173364
1250 14th Street
Denver, CO 80217
United States

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