Firm Stock Returns' Sensitivities to Crisis Shocks

37 Pages Posted: 17 Aug 2011

See all articles by Maria Soledad Martinez Peria

Maria Soledad Martinez Peria

International Monetary Fund (IMF)

Charles W. Calomiris

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

Inessa Love

World Bank - Development Economics Data Group (DECDG)

Date Written: August 17, 2011

Abstract

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.

Keywords: stock returns, crisis

JEL Classification: F30, G01, G12

Suggested Citation

Martinez Peria, Maria Soledad and Calomiris, Charles W. and Love, Inessa, Firm Stock Returns' Sensitivities to Crisis Shocks (August 17, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1911450 or http://dx.doi.org/10.2139/ssrn.1911450

Maria Soledad Martinez Peria (Contact Author)

International Monetary Fund (IMF) ( email )

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

Charles W. Calomiris

Columbia University - Columbia Business School ( email )

3022 Broadway
601 Uris, Dept. of Finance & Economics
New York, NY 10027
United States
212-854-8748 (Phone)
212-316-9219 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

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