The 2007-2009 Financial Crisis: Changing Market Dynamics and the Impact of Credit Supply and Aggregate Demand Sensitivity
AbstractThis paper highlights the impact of credit supply and aggregate demand sensitivity on 91 US industries' stock performance during the 2007-2009 financial crisis. We account explicitly for changes in the market model and investigate, next to stock returns, the changes in systematic risk and idiosyncratic return induced by the financial crisis. The results show that leverage has a significantly positive effect on systematic risk changes during the financial crisis. After accounting for the change in systematic risk, the crisis induced idiosyncratic return is significantly related to industry leverage and the industry's sensitivity to aggregate demand. A subsequent analysis shows that both leverage and demand sensitivity have economically large effects on industry performance during the crisis.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 344.
Date of creation: May 2012
Date of revision:
financial crisis; systematic risk; credit supply; aggregate demand;
Other versions of this item:
- Theoharry Grammatikos & Robert Vermeulen, 2014. "The 2007--2009 financial crisis: changing market dynamics and the impact of credit supply and aggregate demand sensitivity," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 895-911, March.
- Theoharry Grammatikos & Robert Vermeulen, 2012. "The 2007-2009 Financial Crisis: Changing Market Dynamics and the Impact of Credit Supply and Aggregate Demand Sensitivity," LSF Research Working Paper Series 12-8, Luxembourg School of Finance, University of Luxembourg.
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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