Financial versus Demand shocks in stock price returns of US non-financial firms in the crisis of 2007
In the aftermath of the recent bank-centered financial crisis it is still unclear how much of the decline in non-financial firms' stock prices was due to liquidity shortage, and how much of this decline was due to lower expected consumer demand. The stock returns are examined over nine periods between July 31, 2007 and March 31, 2010. The near-collapse of Bear Stearns and the failure of Lehman Brothers can be both characterised as liquidity shocks that had a greater impact on financially fragile non-financial firms. It was mostly improvement in demand expectations that positively affected the performance of US non-financial firms in the first months of recovery. In the later periods, however, neither amelioration in demand expectations nor improvement of financial conditions can explain the performance of US non-financial firms
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