What Explains Stock Markets' Vulnerability to the 2007-2008 Crisis ? [electronic resource] / Love, Inessa
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TextPublication details: Washington, D.C., The World Bank, 2010Description: 1 online resource (42 p.)Subject(s): Asset values | Banking assets | Capital flows | Debt Markets | Developing countries | Economic Theory & Research | Emerging Markets | Emerging markets | Equity holdings | Finance and Financial Sector Development | Financial crisis | Financial institutions | Financial markets | Housing finance | International bank | Macroeconomics and Economic Growth | Market data | Market returns | Markets and Market Access | Mutual Funds | Private Sector Development | Residential mortgages | Returns | Stock market | Stock market index | Stock markets | Stock returns | Total debtAdditional physical formats: Love, Inessa.: What Explains Stock Markets' Vulnerability to the 2007-2008 Crisis ?Online resources: Click here to access online 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.
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.
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