Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:


Smaller companies hit hardest during emerging market crises

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.”

About the OSU College of Business: The College of Business educates students for success in managing and developing sustainable, innovative enterprises in a dynamic economy. With strong graduate and undergraduate programs, internationally recognized scholarly research, and an emphasis on experiential learning, the college helps students and businesses succeed.

Dave Berger | EurekAlert!
Further information:

More articles from Business and Finance:

nachricht Finance: Belief in higher returns from private equity may be misplaced
13.10.2015 | Universität Luxemburg - Université du Luxembourg

nachricht RWI/ISL Container Throughput Index: World Trade Remains Sluggish
25.08.2015 | Rheinisch-Westfälisches Institut für Wirtschaftsforschung e.V.

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Climate study finds evidence of global shift in the 1980s

Planet Earth experienced a global climate shift in the late 1980s on an unprecedented scale, fuelled by anthropogenic warming and a volcanic eruption, according to new research published this week.

Scientists say that a major step change, or ‘regime shift’, in the Earth’s biophysical systems, from the upper atmosphere to the depths of the ocean and from...

Im Focus: Innovative Photovoltaics – from the Lab to the Façade

Fraunhofer ISE Demonstrates New Cell and Module Technologies on its Outer Building Façade

The Fraunhofer Institute for Solar Energy Systems ISE has installed 70 photovoltaic modules on the outer façade of one of its lab buildings. The modules were...

Im Focus: Lactate for Brain Energy

Nerve cells cover their high energy demand with glucose and lactate. Scientists of the University of Zurich now provide new support for this. They show for the first time in the intact mouse brain evidence for an exchange of lactate between different brain cells. With this study they were able to confirm a 20-year old hypothesis.

In comparison to other organs, the human brain has the highest energy requirements. The supply of energy for nerve cells and the particular role of lactic acid...

Im Focus: Laser process simulation available as app for first time

In laser material processing, the simulation of processes has made great strides over the past few years. Today, the software can predict relatively well what will happen on the workpiece. Unfortunately, it is also highly complex and requires a lot of computing time. Thanks to clever simplification, experts from Fraunhofer ILT are now able to offer the first-ever simulation software that calculates processes in real time and also runs on tablet computers and smartphones. The fast software enables users to do without expensive experiments and to find optimum process parameters even more effectively.

Before now, the reliable simulation of laser processes was a job for experts. Armed with sophisticated software packages and after many hours on computer...

Im Focus: Quantum Simulation: A Better Understanding of Magnetism

Heidelberg physicists use ultracold atoms to imitate the behaviour of electrons in a solid

Researchers at Heidelberg University have devised a new way to study the phenomenon of magnetism. Using ultracold atoms at near absolute zero, they prepared a...

All Focus news of the innovation-report >>>



Event News

Fraunhofer’s Urban Futures Conference: 2 days in the city of the future

25.11.2015 | Event News

Gluten oder nicht Gluten? Überempfindlichkeit auf Weizen kann unterschiedliche Ursachen haben

17.11.2015 | Event News

Art Collection Deutsche Börse zeigt Ausstellung „Traces of Disorder“

21.10.2015 | Event News

Latest News

Siemens to supply 126 megawatts to onshore wind power plants in Scotland

27.11.2015 | Press release

Two decades of training students and experts in tracking infectious disease

27.11.2015 | Life Sciences

Coming to a monitor near you: A defect-free, molecule-thick film

27.11.2015 | Materials Sciences

More VideoLinks >>>