Effects of subprime crisis on U.S. stock return and volatility

Chong, Choy Yoke (2011) Effects of subprime crisis on U.S. stock return and volatility. Global Economy and Finance Journal, 4 (1). pp. 102-111. ISSN 1834-5883

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Abstract

The U.S. Subprime credit crisis began with massive defaults by Subprime borrowers in mortgage markets. The crisis created certain degree of impact on financial markets as shown by Longstaff (2010) on the contagion across financial markets from the credit crisis. Hence, this paper attempted to study about the behavior of U.S. stock market in term of stock return and volatility along with the Subprime crisis. Daily data of S&P 100 stock indexes for the period of May 2006 to December 2009 are studied using basic GARCH model. The data were then divided into three different sub-periods to allow the behavior of stock market in different sub-periods to be investigated. The following sub-periods are identified: early stage of Subprime crisis, recession of U.S. and period after the bankruptcy of Lehman Brothers. This paper revealed that the bankruptcy of Lehman Brothers following the Subprime crisis turned out to have bigger impact on stock market volatility but not on the stock returns in general, though the impact is transitory.

Item Type: Article
Subjects: H Social Sciences > HF Commerce
Divisions: Faculty of Management (FOM)
Depositing User: Ms Rosnani Abd Wahab
Date Deposited: 12 Feb 2014 04:10
Last Modified: 12 Feb 2014 04:10
URI: http://shdl.mmu.edu.my/id/eprint/5174

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