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What explains stock markets'vulnerability to the 2007-2008 crisis ?

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Author Info

  • Didier, Tatiana
  • Love, Inessa
  • Peria, Maria Soledad Martinez

Abstract

This paper examines the determinants of stock markets'vulnerability to the 2007-2008 crisis. Given that the United States (US) was the crisis epicenter, the authors analyze the factors driving the co-movement between US returns and stock returns in 83 countries. The analysis distinguishes between the period before and after the collapse of Lehman Brothers. The findings indicate that the main channel of transmission was financial. There is also evidence of a"wake-up call"or"demonstration effect"in the first stage of the crisis, because countries with vulnerable banking and corporate sectors exhibited higher co-movement with the US market. However, despite a collapse in trade across countries, the analysis does not find support for this channel of transmission.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5224.

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Date of creation: 01 Mar 2010
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Handle: RePEc:wbk:wbrwps:5224

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Related research

Keywords: Debt Markets; Mutual Funds; Markets and Market Access; Economic Theory&Research; Emerging Markets;

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Cited by:
  1. Rudiger Ahrend & Antoine Goujard, 2012. "International Capital Mobility and Financial Fragility - Part 6. Are all Forms of Financial Integration Equally Risky in Times of Financial Turmoil?: Asset Price Contagion During the Global Financial ," OECD Economics Department Working Papers 969, OECD Publishing.
  2. Lupu, Radu, 2011. "Shock transmission among the European Stock markets - Conferinta CRESTERE ECONOMICA SI SUSTENABILITATE SOCIALA. PROVOCARI SI PERSPECTIVE EUROPENE>," Institute for Economic Forecasting Conference Proceedings 101101, Institute for Economic Forecasting.
  3. Fernanda G Barba & Paulo S Ceretta, 2011. "Risk transmission between Latin America stock markets and the US: impacts of the 2007/2008 Crisis," Economics Bulletin, AccessEcon, vol. 31(2), pages 1025-1037.
  4. repec:rze:efinan:v:9:y:2012:i:1:p:35-43 is not listed on IDEAS
  5. Luís Brandão Marques & Gaston Gelos & Natalia Melgar, 2013. "Country Transparency and the Global Transmission of Financial Shocks," IMF Working Papers 13/156, International Monetary Fund.
  6. Kristin J. Forbes, 2012. "The “Big C”: identifying and mitigating contagion," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 23-87.
  7. Bong-Han Kim & Hyeongwoo Kim & Bong-Soo Lee, 2012. "Spillover Effects of the U.S. Financial Crisis on Financial Markets in Emerging Asian Countries," Auburn Economics Working Paper Series auwp2012-06, Department of Economics, Auburn University.

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