Featured Research

from universities, journals, and other organizations

Smaller companies hit hardest during emerging market crises

Date:
June 24, 2011
Source:
Oregon State University
Summary:
A study of the reaction by the United States stock market to international financial crises shows that small companies are often hit hardest, and the impact is above and beyond what would be expected given their exposure to global market factors.

A study of the reaction by the United States stock market to international financial crises shows that small companies are often hit hardest, and the impact is above and beyond what would be expected given their exposure to global market factors.

This unexpected result suggests the significant impact that investors' actions can have during emerging market crises. During these crises, investors flee to the perceived safety of big companies and shed stocks of smaller companies, despite comparable levels of international exposure during normal periods.

"The take-away is, just because you invest locally doesn't mean you are protected from the global market," said David Berger, an assistant professor of finance at Oregon State University.

Looking at almost 20 years of data that covered about eight large emerging market crashes, Berger and H.J. Turtle of Washington State University uncovered this flight-from-risk trend on the part of investors that flee from small stocks. The results are published in the current issue of the Global Finance Journal.

"We would expect that stock markets in two different, but related economies would crash at the same time," Berger said. "But we found that during big market crashes, investors adjust their holdings towards bigger corporate stocks that they perceive as being safer, even after controlling for economic exposures."

Berger said the results of his study are unexpected because past research has focused on the aggregate U.S. market as a whole and found little impact during emerging market crises.

"Investors see these big blue chip stocks as the safer ones, and small, R&D intensive stocks for example, as riskier," Berger said. "So the stock of a smaller domestic company could take a hit because of an international shock."

Berger studies U.S. equity markets and international stocks, and said the findings from this study have important implications for investors, even those who tend to invest mainly in the domestic market.

"Interestingly, larger stocks often benefited from emerging market crises and exhibited positive returns," Berger added. "Because investors started dumping smaller stocks in favor of safer, larger ones, the irony is that larger multinational corporations potentially see positive benefits during international crises."


Story Source:

The above story is based on materials provided by Oregon State University. Note: Materials may be edited for content and length.


Journal Reference:

  1. Dave Berger, H.J. Turtle. Emerging market crises and US equity market returns. Global Finance Journal, 2011; DOI: 10.1016/j.gfj.2011.05.003

Cite This Page:

Oregon State University. "Smaller companies hit hardest during emerging market crises." ScienceDaily. ScienceDaily, 24 June 2011. <www.sciencedaily.com/releases/2011/06/110621121323.htm>.
Oregon State University. (2011, June 24). Smaller companies hit hardest during emerging market crises. ScienceDaily. Retrieved October 21, 2014 from www.sciencedaily.com/releases/2011/06/110621121323.htm
Oregon State University. "Smaller companies hit hardest during emerging market crises." ScienceDaily. www.sciencedaily.com/releases/2011/06/110621121323.htm (accessed October 21, 2014).

Share This



More Computers & Math News

Tuesday, October 21, 2014

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Japanese Scientists Unveil Floating 3D Projection

Japanese Scientists Unveil Floating 3D Projection

Reuters - Innovations Video Online (Oct. 20, 2014) — Scientists in Tokyo have demonstrated what they say is the world's first 3D projection that floats in mid air. A laser that fires a pulse up to a thousand times a second superheats molecules in the air, creating a spark which can be guided to certain points in the air to shape what the human eye perceives as an image. Matthew Stock reports. Video provided by Reuters
Powered by NewsLook.com
Apple Enters Mobile Payment Business

Apple Enters Mobile Payment Business

AP (Oct. 20, 2014) — Apple is making a strategic bet with the launch of Apple Pay, the mobile pay service aimed at turning your iPhone into your wallet. (Oct. 20) Video provided by AP
Powered by NewsLook.com
Google To Protect Against Piracy ... At A Cost

Google To Protect Against Piracy ... At A Cost

Newsy (Oct. 20, 2014) — Google is changing its search-engine results to protect content producers from piracy — for a price. Video provided by Newsy
Powered by NewsLook.com
What We Know About Microsoft's Rumored Smartwatch

What We Know About Microsoft's Rumored Smartwatch

Newsy (Oct. 20, 2014) — Microsoft will reportedly release a smartwatch that works across different mobile platforms, has a two-day battery life and tracks heart rate. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
 
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:  

Breaking News:

Strange & Offbeat Stories

 

Space & Time

Matter & Energy

Computers & Math

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:  

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile iPhone Android Web
Follow Facebook Twitter Google+
Subscribe RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins