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Financial Markets Around the Great Recession: East Meets West

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  • Peter Simmons
  • Yuanyuan Xie

Abstract

The 2007-2009 great recession saw sharp drops in equity values world wide and associated strong real effects. We develop an world CAPM approach, extended to allow for infinite risk/return opportunities, short sales constraints, borrowing and saving rate differentials. With MSCI monthly data, we use this to estimate tangent portfolios, standard deviations and market prices of risk in each country. We find short selling has a strong impact, in the crisis the net supply of equity finance vanished. If short selling is impossible, investors should have switched into cash. Postcrisis it rose but was still lower than precrisis.

Suggested Citation

  • Peter Simmons & Yuanyuan Xie, 2013. "Financial Markets Around the Great Recession: East Meets West," Discussion Papers 13/29, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:13/29
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    References listed on IDEAS

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    More about this item

    Keywords

    Great recession; World CAPM; Supply of risky finance;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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