Cares Act and Foreclosure Moratorium on Housing Sector Stock Performance

Did the United States government distort efficient returns of the housing finance sector in response to the novel coronavirus (Covid-19) pandemic? This paper employs a Fama-French five-factor capital asset pricing model event study hybrid approach to investigate if the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and foreclosure moratorium distorted efficient stock returns of the housing sector. The analysis focuses on events associated with the CARES Act and the foreclosure moratorium through the Covid-19 pandemic. The findings reveal that the CARES Act led to short-term abnormal stock returns in the housing sector during the pandemic-induced recession. Specifically, mortgage-related firm stock returns experienced a negative shock from the CARES Act's signage into law. Real estate and residential construction firm stock returns were found to be increased by the CARES Act but at a much smaller magnitude than mortgage stock returns were decreased. The results highlight the vulnerability of mortgage firm stock returns to legislation like the CARES Act. In contrast, this research shows that firms related to real estate and residential construction held more robust stock returns in response to legislation like the CARES Act