Stock returns and volatility : the european big three before and during the crisis

Abstract

This paper examines the relationship between stock returns and volatility for the three largest stock markets in Europe, the British, the French and the German. The reason for choosing these markets is the various and long term data that are provided. Moreover, the large impact of the crisis at a multitude of traded european firms resulted in severe alternation of firm and industry level of financial leverage. Gathering data from a period including the major burst of the financial crisis and ending after the major interest rate cuts and the generous market and liquidity strengthen packages. Specifically, the data is divided in two segments of daily stock returns. The first covers the 8/1990 to 8/2007 period and the second covers the 9/2007 to 9/2009 period. This division is selected in order to pinpoint the crisis effect on stock returns.