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Stock returns’ sensitivities to crisis shocks: Evidence from developed and emerging markets

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  • Calomiris, Charles W.
  • Love, Inessa
  • Martínez Pería, María Soledad

Abstract

We consider three “crisis shocks” related to key features of the 2007–2008 crisis, for emerging and developed economies: (1) the collapse of global trade, (2) the contraction of credit supply, and (3) selling pressure on firms’ equity. Using an international cross-section of firms, we find that returns’ sensitivities to these shocks imply large and statistically significant influences on residual equity returns during the crisis period (after controlling for normal risk factors that are associated with expected returns). Similar analysis for several placebo periods shows that these effects are generally less severe or absent in non-crisis periods. Relative to developed economies, emerging markets are more responsive to global trade conditions (in crisis and in placebo periods), but less responsive to selling pressures. An analysis of portfolios of firms during various placebo periods indicates that investors are not compensated for the risks associated with the crisis shocks. Finally, a month-by-month analysis of returns during the crisis period shows that the time variation of the importance of each of the sensitivities to shocks tracks related changes in the global economic environment.

Suggested Citation

  • Calomiris, Charles W. & Love, Inessa & Martínez Pería, María Soledad, 2012. "Stock returns’ sensitivities to crisis shocks: Evidence from developed and emerging markets," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 743-765.
  • Handle: RePEc:eee:jimfin:v:31:y:2012:i:4:p:743-765
    DOI: 10.1016/j.jimonfin.2012.01.002
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    Cited by:

    1. Geert Bekaert & Michael Ehrmann & Marcel Fratzscher & Arnaud Mehl, 2014. "The Global Crisis and Equity Market Contagion," Journal of Finance, American Finance Association, vol. 69(6), pages 2597-2649, December.
    2. Chiu, Wan-Chien & Wang, Chih-Wei & Peña, Juan Ignacio, 2016. "Tail risk spillovers and corporate cash holdings," Journal of Multinational Financial Management, Elsevier, vol. 36(C), pages 30-48.
    3. Ivanov, Ivan & Kabaivanov, Stanimir & Bogdanova, Boryana, 2016. "Stock market recovery from the 2008 financial crisis: The differences across Europe," Research in International Business and Finance, Elsevier, vol. 37(C), pages 360-374.
    4. Milcheva, Stanimira & Zhu, Bing, 2016. "Bank integration and co-movements across housing markets," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 148-171.
    5. Joanna Olbrys & Elzbieta Majewska, 2016. "Crisis periods and contagion effects in the CEE stock markets: the influence of the 2007 US subprime crisis," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 6(2), pages 124-137.
    6. Olbryś Joanna & Majewska Elżbieta, 2015. "Testing Integration Effects Between the Cee and U.S. Stock Markets During the 2007–2009 Global Financial Crisis," Folia Oeconomica Stetinensia, De Gruyter Open, vol. 15(1), pages 101-113, June.
    7. Jinjarak, Yothin, 2013. "Supply Chains and Credit-Market Shocks: Some Implications for Emerging Markets," ADBI Working Papers 443, Asian Development Bank Institute.

    More about this item

    Keywords

    Stock returns; Crisis;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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