Leverage effects of financial markets in financial crisis

Abstract

We have investigated the leverage effects of three major financial markets within a time frame from 2000 to 2012 throughout the 2008 financial crisis. First, dividing the considered time into four consecutive periods, we find the leverage effects of markets exhibiting similar pattern at various periods. Second, splitting the yield data into the positive-return and negative-return series, we find these two series always show anti-leverage effect. The anti-leverage effect of negative-return series usually dominates over the positive one, reflecting people at most times are more sensitive to bad news. However, we observe anomalous behavior in approaching the outbreak of crisis, where the positive-return series shows stronger anti-leverage effect, i.e. people become more sensitive to good news instead. Such phenomenology can persist till after the crisis for an immature market, as opposed to a mature market where it disappears before the end of crisis without external intervene. Our results afford insight into the micro-emotion of various financial markets swept through by the financial crisis.