No Place to Hide: The Global Crisis in Equity Markets in 2008/09
Journal of International Money and Finance, Vol. 28, No. 8. pp. 1246-1292, December 2009
72 Pages Posted: 3 Jun 2009 Last revised: 23 Dec 2019
Date Written: March 14, 2009
This paper provides a broad analysis of the effect of the current financial crisis on global equity markets and their major components. We also examine the magnitude of the crisis in terms of value destruction in comparison to other market crashes. In brief, upon looking at return performance across an array of regions, countries, and sectors, broad market averages are down approximately 40% on their end of 2006 levels. While deterioration started in most markets in early to mid 2008, the crisis period of mid September to the end of October 2008 is responsible for the lion's share of the collapse with just about all indices falling 30 - 40% in this short period. Financial sectors have taken a bigger hit than non-financials over the period, though they both suffered similarly during the peak of the crisis. Due to larger rises in 2007 the emerging markets drop more in 2008 than developed markets but in large part end up at the same level as the other markets. The global nature of the crisis is also apparent from the high correlations between markets and investment styles that further increased during the crisis. As a result, diversification provided little help to investors when needed most as markets dropped in tandem.
Keywords: Equity market, financial crisis, shareholder value, performance, international finance
JEL Classification: G3, F4, F3
Suggested Citation: Suggested Citation