Market Crashes

47 Pages Posted: 10 May 2010 Last revised: 11 Apr 2011

See all articles by Maria Kasch

Maria Kasch

University of Mannheim - Department of Finance

Jose Gonzalo Rangel

Goldman Sachs Group, Inc. - Global Investment Research

Moritz Weigand

PPI AG

Date Written: February 1, 2011

Abstract

This paper studies cross-sectional determinants of stock returns and order flow around five recent episodes of market crashes in the United States during the period from 1998 to 2008. Stocks with high volatility, turnover and market beta are consistent losers during crashes and winners during recoveries. Trading activity in times of crashes is subject to flight to size. Recoveries are characterized by flights to stocks with large crash-period losses, low crash period volatility and turnover, and small stocks. Overall, the evidence suggests that cross sectional returns in crisis periods are determined by (i) stocks’ “market sensitivity” characteristics and (ii) re-allocation of resources in the market.

Keywords: stock market crashes, post-crash recoveries, order imbalance, flight to size, flight to quality, flight to liquidity

JEL Classification: G10, G12

Suggested Citation

Kasch, Maria and Rangel, Jose Gonzalo and Weigand, Moritz, Market Crashes (February 1, 2011). Available at SSRN: https://ssrn.com/abstract=1604237 or http://dx.doi.org/10.2139/ssrn.1604237

Maria Kasch (Contact Author)

University of Mannheim - Department of Finance ( email )

L5, 2, room 105
Mannheim, 68161
Germany
+49 621 181 1514 (Phone)
+49 621 181 1519 (Fax)

Jose Gonzalo Rangel

Goldman Sachs Group, Inc. - Global Investment Research ( email )

200 West Street
New York, NY 10280
United States

Moritz Weigand

PPI AG ( email )

Wilhelm-Leuschner-Straße 79
Frankfurt am Main, 60329
Germany
+49 69 2222942 4248 (Phone)
+49 69 2222942 4222 (Fax)

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