Financial crises, stock returns and volatility in an emerging stock market: the case of Jordan
AbstractPurpose – The purpose of this paper is to empirically examine stock returns behavior during financial crises for an emerging market from 1992 to 2009. The authors identify episodes of significant price declines “crashes” and watch the stock price behavior during these episodes. Design/methodology/approach – This paper examines seven historical episodes of stock market crashes and their aftermath in the ASE over the last 18 years. The authors examine the behavior of stock returns and volatility in ASE during global, regional and local events. For this purpose the GARCH-M model is used to capture changes in variance. The data covers the period from January 1, 1992 to July 2, 2009 with different data frequency of daily, weekly and monthly closing prices for ASE general weighted price index. The authors use the crisis specification adopted by Mishkin and White where they define stock market crash as 20 percent decline in the stock market, and the one adopted by Patel and Sarker where they use a 35 percent or more fall in emerging stock market from its historical maximum as a definition of stock market crash, and the authors extend by adopting a third scenario to account only for the 2008-2009 crisis. Findings – The results show that crises in general have negative impact on stock returns for all sectors, with the banking sector being the most affected. The effect of the 2008-2009 crash is the most severe, with the largest drop in stock prices and high volatilities. The paper provides an evidence of high persistence in volatility and strong reverse relationship between stock return and its volatility before and after the crises. Research limitations/implications – The paper does not include rest-of-the-world economies. Practical implications – Stock return behavior change around financial crises, it can help the investment world and the academics predict stock return behavior and the dynamics of the first two moments during crises. Originality/value – The authors use three crisis specifications in one paper adopted by Mishkin and White (2002), Patel and Sarker (1998) and extend by adopting a third scenario to account only for the 2008-2009 crisis. The paper tests for robustness of the results using daily, weekly, and monthly frequencies. Few studies have examined the behavior of stock returns and volatility during financial crises with the majority of work done on developed markets. JEL classification: G01
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 39 (2012)
Issue (Month): 2 (May)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
- Aggarwal, Reena & Inclan, Carla & Leal, Ricardo, 1999. "Volatility in Emerging Stock Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 33-55, March.
- Kanokwan Chancharoenchai & Sel Diboog�Lu & Ike Mathur, 2005. "Stock Returns and the Macroeconomic Environment Prior to the Asian Crisis in Selected Southeast Asian Countries," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 41(4), pages 38-56, August.
- Hammoudeh, Shawkat & Li, Huimin, 2008. "Sudden changes in volatility in emerging markets: The case of Gulf Arab stock markets," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 47-63.
- Mark Carlson, 2006. "A brief history of the 1987 stock market crash with a discussion of the Federal Reserve response," Finance and Economics Discussion Series 2007-13, Board of Governors of the Federal Reserve System (U.S.).
- Guillermo A. Calvo, 2005.
"Crises in Emerging Market Economies: A Global Perspective,"
NBER Working Papers
11305, National Bureau of Economic Research, Inc.
- Guillermo A. Calvo, 2008. "Crises in Emerging Markets Economies: A Global Perspective," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmid (ed.), Current Account and External Financing, edition 1, volume 12, chapter 3, pages 085-115 Central Bank of Chile.
- Guillermo Calvo, 2007. "Crises in Emerging Market Economies: A Global Perspective," Working Papers Central Bank of Chile 441, Central Bank of Chile.
- Baillie, R.T. & Degennaro, R.P., 1988.
"Stock Returns And Volatility,"
8803, Michigan State - Econometrics and Economic Theory.
- Lucjan T. Orlowski, 2008. "Stages of the Ongoing Global Financial Crisis: Is There a Wandering Asset Bubble?," IWH Discussion Papers 11, Halle Institute for Economic Research.
- Poon, Ser-Huang & Taylor, Stephen J., 1992. "Stock returns and volatility: An empirical study of the UK stock market," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 37-59, February.
- Frederic S. Mishkin & Eugene N. White, 2002.
"U.S. Stock Market Crashes and Their Aftermath: Implications for Monetary Policy,"
NBER Working Papers
8992, National Bureau of Economic Research, Inc.
- Eugene White & Frederic Mishkin, 2002. "U.S.Stock Market Crashes and Their Aftermath: Implications for Monetary Policy," Departmental Working Papers 200208, Rutgers University, Department of Economics.
- Adrian R. Pagan & G. William Schwert, 1990.
"Alternative Models For Conditional Stock Volatility,"
NBER Working Papers
2955, National Bureau of Economic Research, Inc.
- Pagan, Adrian R. & Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 267-290.
- Pagan, A.R. & Schwert, G.W., 1989. "Alternative Models For Conditional Stock Volatility," Papers 89-02, Rochester, Business - General.
- Sandeep Patel & Asani Sarkar, 1998. "Stock market crises in developed and emerging markets," Research Paper 9809, Federal Reserve Bank of New York.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
- Chou, Ray Yeutien, 1988. "Volatility Persistence and Stock Valuations: Some Empirical Evidence Using Garch," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-94, October-D.
- Eli Bouri & Andre Eid & Imad Kachacha, 2014. "The Dynamic Behaviour and Determinants of Linkages among Middle Eastern and North African Stock Exchanges," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 1-22, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jade Turvey).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.