Firm Stock Returns' Sensitivities to Crisis Shocks
Maria Soledad Martinez Peria
World Bank - Development Research Group (DECRG)
Charles W. Calomiris
Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)
World Bank - Development Economics Data Group (DECDG)
August 17, 2011
Midwest Finance Association 2012 Annual Meetings Paper
We identify three “crisis shocks” related to key features of the 2007-2008 crisis: (1) the collapse of global demand, (2) the contraction of credit supply, and (3) selling pressure on firms’ equity. Using an international cross-section of firms, we analyze whether firms’ sensitivities to these shocks are reflected in stock returns over the period of the global financial crisis of 2007-2008. Firms’ sensitivities to these three “crisis shocks” result 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 not significant. A month-by-month analysis shows that the time variation of the importance of each of the sensitivities to shocks tracks related changes in the global economic environment.
Number of Pages in PDF File: 37
Keywords: stock returns, crisis
JEL Classification: F30, G01, G12working papers series
Date posted: August 17, 2011
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