INVESTMENT STYLES PERFORMANCE IN EUROPEAN STOCK MARKETS BEFORE, DURING, AND AFTER SUBPRIME FINANCIAL CRISIS, DESEMPENO DE ESTILOS DE INVERSION EN LOS MERCADOS ACCIONARIOS EUROPEOS EN LOS PERIODOS PREVIO, DURANTE Y POST CRISIS SUBPRIME

Eduardo Sandoval and Claudia Reyes

Revista Internacional Administracion & Finanzas, 2012, vol. 5, issue 3, 1-18

Abstract: This paper investigates the performance of two investment styles; Value and Growth, respectively, in European stock markets, according to the MSCI classification for the subperiods before, during and after subprime financial crisis. Performance is measured by Jensen's alpha. In the estimates we use an APT with three systematic market risk factors, orthogonal to each other, based on the stock markets behavior of: The United States, developed Europe as well as emerging Europe. The results show that the Belgium stock market was the most exposed to wealth destruction during the crisis. By contrast, Russia had the highest relative strength and exhibited the highest performance. In the pre-crisis period, Greece was the most prominent, while in the post crisis period it was Turkey. We conclude that the United States must perfect its corporate governance in order to minimize moral hazard problems that are transferred to the stock markets of developed European countries when a global financial crisis occurs.

Keywords: Subprime financial crisis; Jensen’s alpha; moral hazard (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Date: 2012
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