Crisis "Shock Factors" and the Cross-Section of Global Equity Returns

40 Pages Posted: 22 Nov 2010 Last revised: 30 Nov 2010

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Inessa Love

World Bank - Development Economics Data Group (DECDG)

Maria Soledad Martinez Peria

International Monetary Fund (IMF)

Date Written: November 2010

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.

Suggested Citation

Calomiris, Charles W. and Love, Inessa and Martinez Peria, Maria Soledad, Crisis "Shock Factors" and the Cross-Section of Global Equity Returns (November 2010). NBER Working Paper No. w16559. Available at SSRN: https://ssrn.com/abstract=1712236

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

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National Bureau of Economic Research (NBER)

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Inessa Love

World Bank - Development Economics Data Group (DECDG) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/ilove

Maria Soledad Martinez Peria

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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