The 2007-2009 Financial Crisis: Changing Market Dynamics and the Impact of Credit Supply and Aggregate Demand Sensitivity

Theoharry Grammatikos and Robert Vermeulen

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: This paper highlights the impact of credit supply and aggregate demand sensitivity on 91 US industries stock performance during the 2007-2009 financial crisis. We account explicitly for changes in the market model and investigate, next to stock returns, the changes in systematic risk and idiosyncratic return induced by the financial crisis. The results show that leverage has a significantly positive effect on systematic risk changes during the financial crisis. After accounting for the change in systematic risk, the crisis induced idiosyncratic return is significantly related to industry leverage and the industry s sensitivity to aggregate demand. A subsequent analysis shows that both leverage and demand sensitivity have economically large effects on industry performance during the crisis.

Keywords: financial crisis; systematic risk; credit supply; aggregate demand (search for similar items in EconPapers)
JEL-codes: G01 G12 G32 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The 2007--2009 financial crisis: changing market dynamics and the impact of credit supply and aggregate demand sensitivity (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:12-8

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