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

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  • 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.

Suggested Citation

  • Didier, Tatiana & Love, Inessa & Peria, Maria Soledad Martinez, 2010. "What explains stock markets'vulnerability to the 2007-2008 crisis ?," Policy Research Working Paper Series 5224, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5224
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    References listed on IDEAS

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    2. Chad P. Bown, 2011. "Taking Stock of Antidumping, Safeguards and Countervailing Duties, 1990–2009," The World Economy, Wiley Blackwell, vol. 34(12), pages 1955-1998, December.
    3. Knetter, Michael M. & Prusa, Thomas J., 2003. "Macroeconomic factors and antidumping filings: evidence from four countries," Journal of International Economics, Elsevier, vol. 61(1), pages 1-17, October.
    4. Kyle Bagwell & Robert W. Staiger, 2011. "What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization," American Economic Review, American Economic Association, vol. 101(4), pages 1238-1273, June.
    5. Feinberg, Robert M, 1989. "Exchange Rates and "Unfair Trade."," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 704-707, November.
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    1. repec:eee:finlet:v:23:y:2017:i:c:p:223-232 is not listed on IDEAS
    2. repec:rze:efinan:v:9:y:2012:i:1:p:35-43 is not listed on IDEAS
    3. Mobarek, Asma & Muradoglu, Gulnur & Mollah, Sabur & Hou, Ai Jun, 2016. "Determinants of time varying co-movements among international stock markets during crisis and non-crisis periods," Journal of Financial Stability, Elsevier, vol. 24(C), pages 1-11.
    4. Luis Brandão Brandao Marques & R. G Gelos & Natalia Melgar, 2013. "Country Transparency and the Global Transmission of Financial Shocks," IMF Working Papers 13/156, International Monetary Fund.
    5. Kim, Bong-Han & Kim, Hyeongwoo & Lee, Bong-Soo, 2015. "Spillover effects of the U.S. financial crisis on financial markets in emerging Asian countries," International Review of Economics & Finance, Elsevier, pages 192-210.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. Kristin Forbes, 2012. "The "Big C": Identifying Contagion," NBER Working Papers 18465, National Bureau of Economic Research, Inc.

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    Keywords

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

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