ABSTRACT
Financial crises are normally associated with negative effects on financial markets. In this article, we investigate whether the most recent global financial crisis (GFC) had any positive impact on the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) indices. To conduct the analysis we employ the mean–variance (MV) analysis, CAPM statistics, Hurst exponent, runs test, multiple variation ratio test and stochastic dominance (SD) tests. Our MV and CAPM results conclude that most of the G7 stock indices are significantly less volatile. The results from Hurst exponent, run tests and multiple variation ratio confirm that efficiency improved in the post-GFC period. Finally, our SD results conclude that there is no arbitrage opportunity and the markets are efficient due to the GFC, and, in general, investors prefer investing in the indices after the GFC. Overall, we conclude that the GFC led to markets that are more efficient and mature, confirming that crises can also have positive impacts on stock markets. These findings provide important information for investors and market regulators.
Acknowledgements
The authors thank the editor, Professor Mark P. Taylor, and two anonymous referees for their constructive comments and suggestions, which helped clarify more precisely the results and led to the substantial improvement of an early manuscript. The second author thanks Professors Robert B. Miller and Howard E. Thompson for their continual guidance and encouragement.
Notes
1 Ostermark (Citation1991) uses the capital asset pricing model to analyse two Scandinavian stock markets and finds that the standard CAPM is unable to exhaustively represent the economic forces of capital asset pricing, especially in Sweden.
2 Agudo and Marzal (Citation2004) apply the Sharpe ratio to analyse the performance of Spanish investment funds.
3 Readers may refer to Lo and MacKinlay (Citation1988) for the formula.
4 See Wong and Li (Citation1999) and Li and Wong (Citation1999) for further discussion.
5 Refer to Bai et al. (Citation2011) for the construction of the bootstrapped critical value .