Financial versus demand shocks in stock price returns of U.S. non-financial firms in the crisis of 2007

Varvara Isyuk

International Economics, 2013, issue 133, 29-49

Abstract: In the aftermath of the recent bank-centred financial crisis it is still unclear how much of the decline in non-financial firms' stock prices was due to liquidit0y shortage, and how much of this decline was due to lower expected consumer demand. The stock returns are examined over nine periods between July 31, 2007 and March 31, 2010. The near-collapse of Bear Stearns and the failure of Lehman Brothers can be both characterised as liquidity shocks that had a greater impact on financially fragile non-financial firms. It was mostly improvement in demand expectations that positively affected the performance of U.S. non-financial firms in the first months of recovery. In the later periods, however, neither amelioration in demand expectations nor improvement of financial conditions can explain the performance of U.S. non-financial firms.

Keywords: Stock price returns; Financial constraints; Liquidity shortage; Shock on demand expectations (search for similar items in EconPapers)
JEL-codes: E44 G01 G12 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2013-q1-133-3

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