Working Paper: NBER ID: w16559
Authors: Charles W. Calomiris; Inessa Love; Maria Soledad Martinez Peria
Abstract: We study stock returns over the period of the global financial crisis of 2007-2008 and identify three crisis "shock factors" related to unique features of the crisis: (1) the collapse of global demand, (2) the contraction of credit supply, and (3) selling pressure on firms' equity. All three of these "shock factors" are reflected in 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 the placebo period of August 2005-December 2006 shows that the influences identified during the 2007-2008 sample period are unique to the crisis. A month-by-month analysis shows that the time variation of the importance of each of the shock factors tracks related changes in the global economic environment.
Keywords: financial crisis; equity returns; shock factors; global demand; credit supply
JEL Codes: F30; G01; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| global demand shocks (F69) | residual equity returns (G12) |
| credit supply shocks (E51) | residual equity returns (G12) |
| selling pressure shocks (E44) | residual equity returns (G12) |
| global demand shocks (F69) | stock returns (G12) |
| credit supply shocks + leverage (E51) | stock returns (G12) |
| selling pressure shocks + liquidity (E44) | stock returns (G12) |