Financial Markets Around the Great Recession: East Meets West

Peter Simmons and Yuanyuan Xie ()

Discussion Papers from Department of Economics, University of York

Abstract: The 2007-2009 great recession saw sharp drops in equity values world wide and associated strong real effects. We develop an world CAPM approach, extended to allow for infinite risk/return opportunities, short sales constraints, borrowing and saving rate differentials. With MSCI monthly data, we use this to estimate tangent portfolios, standard deviations and market prices of risk in each country. We find short selling has a strong impact, in the crisis the net supply of equity finance vanished. If short selling is impossible, investors should have switched into cash. Postcrisis it rose but was still lower than precrisis.

Keywords: Great recession; World CAPM; Supply of risky finance (search for similar items in EconPapers)
JEL-codes: E44 E65 G01 G18 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-fmk and nep-mac
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