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Sectoral and industrial performance during a stock market crisis

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  • Ranjeeni, Kumari

Abstract

This paper investigates the impact of the news announcement of the Lehman Brothers’ (LBs) bankruptcy on the performance of the New York Stock Exchange (NYSE) sectors and financial industries. Based on descriptive index level results, Bartram and Bodnar (2009) conclude that the reaction of all sectors and industries was homogeneous during the LBs’ bankruptcy and equity investors could not benefit from diversification. Motivated by Narayan and Sharma's (2011) findings on firm and sector heterogeneity, this paper employs an event study approach to further examine the sectoral and industrial performance during the bankruptcy period. Daily data for a total of 481 firms is examined. The main contribution of this paper is that it provides evidence that sectors behave heterogeneously during a stock market crisis and the significant adverse impact from the LBs’ bankruptcy is discriminatory toward the financial sector and the diversified financial industry, which were most exposed to LBs. This paper proposes for investors to short sell those sector's or industry's securities that are anticipated to be the most significantly adversely affected from a particular negative news announcement.

Suggested Citation

  • Ranjeeni, Kumari, 2014. "Sectoral and industrial performance during a stock market crisis," Economic Systems, Elsevier, vol. 38(2), pages 178-193.
  • Handle: RePEc:eee:ecosys:v:38:y:2014:i:2:p:178-193
    DOI: 10.1016/j.ecosys.2013.12.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Lehman Brothers’ bankruptcy; Global financial crisis; Abnormal returns; Sectors; Trading strategy;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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