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Great Recession: Mere Dry Run for COVID-19?

In: Financial Transformations Beyond the COVID-19 Health Crisis

Author

Listed:
  • Alfredo Martín-Oliver
  • Florina Silaghi

Abstract

The immediate real effects of the COVID-19 crisis are far more dramatic than those of the Great Recession of 2008. Moreover, the initial stock market plunge to the World Health Organization’s announcement on March 11, 2020, declaring COVID-19 a pandemic reached levels unseen since 1997. This has led commentators to qualify the Great Recession as a mere dry run for COVID-19. This chapter compares the reaction of the stock and credit default swap market to Lehman bankruptcy filing announcement with their reaction to the COVID-19 announcements. Cumulative returns and spread changes over a period of 30 calendar days following the event are also analyzed. Moreover, we investigate the effects of both adverse shocks and stimulus announcements by industry. We find that the credit default swap (CDS) market reaction is not statistically different in the two outbreaks, implying a similar increase in perceived credit risk. For the stock market, however, although the initial response to COVID-19 is significantly larger, the post-shock effects over 30 calendar days were significantly larger for the Lehman announcement.

Suggested Citation

  • Alfredo Martín-Oliver & Florina Silaghi, 2022. "Great Recession: Mere Dry Run for COVID-19?," World Scientific Book Chapters, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), Financial Transformations Beyond the COVID-19 Health Crisis, chapter 5, pages 131-151, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800610781_0005
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    Keywords

    COVID19; Pandemic; Pandemic Outbreak; Health Crisis; Economics; Macroeconomics; Finance; Sustainable Finance; Financial Crisis; Financial Integration; Economic Integration; Global Financial Crisis; Financial Institutions; Corporate Finance; Corporate Governance; Board of Directors; ESG; Corporate Social Responsibility; Sustainable Finance; Stock Markets; Financial Markets; Stock Market Behaviour; Firm Liquidity; Emerging Markets; China; Financial Institutions; Money; Banks; Banking System; Banking Sector; Business Groups; Resilience; Safe Heaven; Gold; Oil; Peer-to-Peer Lending Market; Foreign Trading; Stock Market Volatility; Extreme Events;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G3 - Financial Economics - - Corporate Finance and Governance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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