DAX’s January 2008 Crash: A Routine Correction or Outright Panic
62 Pages Posted: 16 Jun 2009
Date Written: June 14, 2009
This work provides a comprehensive study of the January 2008 stock market downturn and its impact on DAX index. We find three possible causes of the crash: adverse economic news, technical trading signals and possible market manipulation (by SocGen). We find strong interdependencies among world equity indices during this period. We examine DAX’s development in the preceding years and do not find any proof of a price bubble. Rather, we find that German stock market operates with a much higher volatility than other markets. In addition, we find that financial stocks were not the most severely affected by the slump, as originally expected. In fact, utilities and insurance companies were hit most severely. We also find that the well-documented January effect has been weakening for the last few years. Finally, we look at the effects of new information on stocks, examining intraday price changes and comparing them to the news released by Reuters during the slump. The results are mixed, except for the monetary policy-related news, which had a strong impact on prices.
Keywords: DAX, January 2008, crash, panic, crisis, contagion, bubble, crash forecasting, January effect, Jérôme Kerviel, sector comparisons during a crash, technical analysis applied, information effects on stocks, volatility
JEL Classification: G14, G15
Suggested Citation: Suggested Citation