THE ANATOMY OF FINANCIAL CRISIS: EVIDENCE FROM THE EMERGING MARKETS

*Anindita Chakraborty **Alok Shrivastava ***Ravindra Pathak

Abstract We study the anatomy of recent financial crises in India, Indonesia, Malaysia, Spain, Brazil, Chile, Italy, Switzerland and Argentina by investigating the return and volatility before the financial crisis and during recession. We use the date of Lehman Bankruptcy case as a proxy of financial crisis (15th September, 2008). Parametric technique was used to test the significant difference before the financial crisis and during the crisis. Our analysis produced mixed results indicating that there is a significant impact of financial crisis on countries like Indonesia, Italy, Brazil, Argentina and Spain.

Keywords: Financial Crisis, volatility, return

Introduction The 20th century faced with the worlds two major financial crises. The first global financial crisis was seeing during 1929-30, which affected the developed nations, Europe and America and the second during 2007-till continued had affected the whole international community. More and more people will be affected by it both directly and indirectly and the full scale of the crisis either economically or socially has not been measured till now. The emerging financial markets or the developing countries has not been left beset by current episode of turmoil of Lehman Brother Bankruptcy most notably originating in U.S at the end of the year 2008. The term emerging markets is used to describe a nation's social or business activity in the process of rapid growth and industrialization. The impact of the current financial crisis poses several interesting questions for the international community and for those involved in policy making in the development community. In immediacy of the occurrence of the financial crisis one of the most severe crisis after Great Depression, most emerging and some of the developed markets experienced sudden and severe downward movements in stocks. These markets are also felt the liquidity crunch, rapid reversals of capital flows, significant output losses, bank runs, or spillover effects. The deliberation of these episodes of instability usually referred to as financial crises. This situation of shrinking global economy is indeed a wakeup call for the international community in general and developing countries in particular. This impact of the global financial crisis has been more severe for emerging markets than for lowincome countries, which are less integrated into international private capital markets. As in 2003-2007, the emerging markets experienced an impressive economic boom with a growth rate of 7% per year. The boom was due to the mix results of the following ingredients prevailing in global markets and that were exceptional financing, high commodity prices, foreign direct investment and, large flows of remittances. These conditions have been replaced since mid-2008, particularly since September 2008, by the effects of financial turmoil that erupted in mid-2007 in the U.S. and resulted in the worst global financial crisis and the worst recession since the Great Depression. The current international financial crisis has its roots in the subprime crisis in the United States. The excessive growth of subprime lending occurred because financial institutions offered non-standard mortgages to individuals with dubious credit profiles and due to this, countries like India and Taiwan saw negative portfolio investment flows. In Latin America, Brazil and Mexico were also hit by losses in derivative markets and, in the first case, by the unwinding of the carry trade. South Africa was also severely hit. It severely affected the bond markets and due to this it came to a halt, bank lending was also get affected, and there was a sharp reversal of flows from mutual funds and an unwinding of the carry trade. This behavior of the quantity and price of financial flows has been a major mechanism transmitting movements in stock markets from industrial to developing countries. On an average, when measured in dollar terms, stock markets have experienced a stronger contraction in emerging markets since their peak in late October early November 2007 than stock markets in industrial countries. In this paper we tried to find out the impact of the financial crisis on the emerging markets stock exchanges like India, Indonesia, Malaysia, Spain, Italy, Switzerland, Brazil, Argentina, and Chile, which were further grouped into continents like Asia, South America, and Europe.

Review of Literature The various theoretical and empirical literature suggested that financial crises have alternatively been attributed to local macroeconomic and microeconomic weaknesses (Krugman, 1979; Agenor et al., 1992; Kaminsky et al., 1998), coordination problems among investors (Chang and Velasco, 1999), the activity of large traders and speculators (e.g., Brown et al., 2000; Kyle and Xiong, 2001), the interaction of stock and foreign exchange markets (Corsetti et al., 1999; Park and Lee, 2003), or crisis is spread from one country to the other generating the contagion phenomenon (Boyer et al., 2006; Pasquariello, 2007) as reviewed by Pasquariello (2008). Demyanyk and Hemart (2008) found that the quality of bank loans deteriorated for six consecutive years before the crisis and that securitizers were, to some extent, aware of it. They further provided evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Hoontrakul (2008) said that the global financial crisis was caused by extra risk taken by banking system and credit markets of US. Past boom and bust cycle caused by excessive speculation was localized and caused by exogenous risk, financial institution reacted to the high uncertainty, banks stop lending to each other. Credit freeze and liquidity crunch, quantitative monetary easing, coordinated rate cut around the world and liquidity injection from the government may stem the panic and only stabilized the financial market, not found quick end to the worldwide recession. Similarly Kenourgios et al. (2008) showed that a crisis episode spreads with a large magnitude even though some countries belong in different regional blocks. The finding had important implications for international investors, returns and volatilities shows higher correlations among stock markets, leaving international investors exposed to unhedged risks. However Mohan (2008) said India had by-and-large been spared of global financial contagion due to the subprime turmoil for a variety of reasons and that were Indias growth process depends on largely domestic demand driven and its dependence on foreign deposits had remained around 1.5% in recent period. The credit derivatives market was in an embryonic stage; the originate-todistribute model in India was not comparable to the ones prevailing in advanced markets; there are restrictions on investments by residents in such products issued abroad; and regulatory guidelines on securitization did not permit immediate profit recognition. Financial stability in India had been achieved through perseverance of policies which prevented institutions from high risk taking, and financial markets from becoming extremely volatile and turbulent. In the studies related to financial crisis and its impact on share it was reported by Bertero and Mayer (1989) and King and Wadhwani (1990) that increase in stock returns correlation in 1987 crash. Calvo and Reinhart (1996) reported that correlation shifted during the Mexican crisis. Baig and Goldfajn (1999) in their study found significant increases in correlation for several East Asian markets and currencies during the East Asian crisis, supporting the contagion phenomenon.

OBJECTIVES OF THE STUDY 1. To evaluate and compare the returns of emerging stock exchanges before financial crisis and during recession. 2. To evaluate and compare the volatility of emerging stock exchanges before financial crisis and during recession. 3. To compare the volatility of emerging stock exchanges of different continents. 4. To compare the returns of emerging stock exchanges of different continents. 5. To open new vistas for further research. DATA AND RESEARCH METHODOLOGY The main purpose of the study is to examine the impact of the financial crisis on the emerging market stock exchanges. The study was empirical in the nature and the total population includes all the stock exchanges of emerging markets. Hence the stock exchanges index prices were the sampling elements and the sampling frame of the study was from 2008-2009. The random sampling technique was used to select the data. The sample size includes nine emerging market stock exchanges. The event-study methodology was used for analyzing the impact of financial crisis on the returns and volatility of the sample stock exchange indices. The stock exchange index returns and volatilities during recession were compared with their returns and volatilities prior to the financial crisis. To analyze the data the study period is divided into the following event window. -100 days 0(Event day) +100 days

Daily prices of individual index for an event window of 100 days before and after financial crisis were taken from the official website of Yahoo finance. The pre-crisis period starts 100 days before the crisis day to 1 day before the crisis and the post-listing period is from 1 day after the crisis to 100 days after the financial crisis. TABLE 1: List of Emerging Market Stock Exchanges
Asia India(BSE-Sensex) Europe Spain (Madrid) South America Brazil (Bovespa) Argentina (Marvel) Chile (IPSA)

Indonesia(Composite Italy (MIBTEL) Index JKSE) Malaysia (KLSE Switzerland(Swiss Composite) Market)

Following tools were applied for data analysis: The daily returns of the indices were computed by logarithmic returns using MS Excel. Inferential statistics was computed with the help of SPSS 16. Rt = 100 *ln (Indext / Indext-1) Where, Rt is the daily mean return percent from the index, P is the price index, t and t 1 represent the current and immediate preceding day. Mean return for each month was computed by applying simple arithmetic mean. Paired sample t-test was applied to find out the significant difference in the index returns.

 Volatility of the index was calculated through standard deviation and F-test was applied to find out the significant difference between the pre and post volatility. To test the difference between the returns and volatility of the different countries SPANOVA was applied. RESULTS AND DISCUSSIONS 1. Comparison of the returns before and during 100 days of financial crisis H01= There is no significant difference in the returns before and during 100 days of recession. Indonesia
Paired Samples Statistics Mean Pair 1 PREINDONESIA POST -.2542 -.1202 N 100 100 Std. Deviation 1.41510 1.38116 Std. Error Mean .14151 .13812

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PREINDO NESIA POST -.13398 Std. Deviation 1.99885 Std. Error Mean .19988 Lower -.53060 Upper t df 99 Sig. (2tailed) .504

.26263 -.670

A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in Indonesia. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.2542, S.D=1.41510) to post 100 days (M= -0.1202, S.D=1.38116), t(99)= -0.670, p= 0.504 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0025 we can conclude that there was a small effect with substantial difference in the return statistics scores obtained before and after the financial crisis. India
Paired Samples Statistics Mean Pair 1 PREINDIA POST -.2065 -.4030 N 100 100 Std. Deviation 2.22598 3.51232 Std. Error Mean .22260 .35123

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PREINDIA POST .19650 Std. Deviation 4.30871 Std. Error Mean .43087 Lower -.65844 Upper 1.05144 t .456 df 99 Sig. (2tailed) .649

A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in India. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.2065, S.D=2.22598) to post 100 days (M= -0.4030, S.D=3.51232), t(99)= 0.456, p= 0.649 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0021 we can conclude that there was a small effect size with substantial difference in the return statistics scores obtained before and after the financial crisis. Malaysia
Paired Samples Statistics Mean Pair 1 PREMALAYSIA POSTMALAYSIA -.2447 -.1381 N 100 100 Std. Deviation .93185 1.39238 Std. Error Mean .09318 .13924

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PREMALAYSIA POSTMALAYSIA -.10660 Std. Deviation 1.66284 Std. Error Mean .16628 Lower -.43654 Upper t df 99 Sig. (2tailed) .523

.22335 -.641

A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in India. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.2447, S.D=.93185) to post 100 days (M= -0.1381, S.D=1.39238), t(99)= -0.641, p= 0.523 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0041 we can conclude that there was a small effect size with substantial difference in the return statistics scores obtained before and after the financial crisis.

Spain
Paired Samples Statistics Mean N 100 100 Std. Deviation 1.07118 1.58865 Std. Error Mean .10712 .15887

Pair 1

PRESPAIN POSTSPAIN

-.0551 -.0926

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PRESPAIN POSTSPAI N Std. Deviation Std. Error Mean Lower Upper T df Sig. (2tailed)

.03747

1.92755

.19276

-.34500

.41994

.194

99

.846

A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in Spain. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.0551, S.D=1.07118) to post 100 days (M= -0.0926, S.D=1.58865), t(99)= 0.194, p= 0.846 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0003 we can conclude that there was a small effect size with substantial difference in the return statistics scores obtained before and after the financial crisis. Switzerland
Paired Samples Statistics Mean Pair 1 PRESWITZERLAND POST -.0156 -.3066 N 100 100 Std. Deviation 1.15532 2.98116 Std. Error Mean .11553 .29812

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PRESWITZ ERLAND .29099 POST Std. Deviation 3.13325 Std. Error Mean .31333 Lower -.33072 Upper .91269 t .929 df 99 Sig. (2tailed) .355

A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in Switzerland. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.156, S.D=1.15532) to post 100 days (M= -0.3066, S.D=2.98116), t(99)= 0.929, p= 0.355 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0086 we can conclude that there was a small effect size with substantial difference in the return statistics scores obtained before and during recession.

Italy
Paired Samples Statistics Mean Pair 1 PREITALY POST -.1925 -.3471 N 100 100 Std. Deviation 1.22256 3.09372 Std. Error Mean .12226 .30937

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PREITALY POST .15456 Std. Deviation 3.28830 Std. Error Mean .32883 Lower -.49791 Upper .80703 t .470 df 99 Sig. (2tailed) .639

A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in Italy. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.1925, S.D=1.22256) to post 100 days (M= -0.33471, S.D=3.09372), t(99)= 0.470, p= 0.639 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0022 we can conclude that there was a small effect size with substantial difference in the return statistics scores obtained before and during recession. Chile A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in Chile. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.2185, S.D=2.12320) to during 100 days (M= -0.0014, S.D=1.55391), t(99)= -0.874, p= 0.384 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0076 we can conclude that there was a small effect size with substantial difference in the return statistics scores obtained before and during recession.

Paired Samples Statistics Mean Pair 1 PRECHILE POST -.2185 -.0014 N 100 100 Std. Deviation 2.12320 1.55391 Std. Error Mean .21232 .15539

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PRECHILE POST -.21709 Std. Deviation 2.48350 Std. Error Mean .24835 Lower -.70987 Upper .27569 t -.874 df 99 Sig. (2tailed) .384

Argentina
Paired Samples Statistics Mean Pair 1 PREARGENTINA POST -.3180 -.3186 N 100 100 Std. Deviation 1.57433 4.21344 Std. Error Mean .15743 .42134

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PREARGENTINA - POST .00056 Std. Deviation 4.79327 Std. Error Mean .47933 Lower -.95052 Upper .95165 t .001 df 99 Sig. (2tailed) .999

A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in Chile. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.3180, S.D=1.57433) to during 100 days (M= -0.3186, S.D=4.21344), t(99)= 0.001, p= 0.999 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0000 we can conclude that there was a small effect size with substantial difference in the return statistics scores obtained before and during recession.

Brazil
Paired Samples Statistics Mean N 100 100 Std. Deviation Std. Error Mean 2.09788 4.63580 .20979 .46358

Pair 1

PREBRAZIL POST

-.2938 -.1398

Paired Samples Test Paired Differences 95% Confidence Interval of the Difference Mean Pair 1 PREBRAZIL POST -.15397 Std. Deviation 5.19707 Std. Error Mean .51971 Lower -1.18518 Upper .87724 T -.296 df 99 Sig. (2tailed) .768

A paired sample t-test was conducted to evaluate the index returns earn before and after 100 days of financial crisis in Chile. There was a statistically significant increase in the returns of the index from pre 100 days (M= -0.2938, S.D=2.09788) to during 100 days (M= -0.1398, S.D=4.63580), t(99)= -0.296, p= 0.768 i.e. more than the 5% level of the significance. So we can conclude that there was no significant difference in the index returns before and after 100 days of financial crisis and thus the null hypothesis was rejected. Given our eta square statistics of 0.0008 we can conclude that there was a small effect size with substantial difference in the return statistics scores obtained before and during recession. 2. Comparison of the volatility before and during 100 days of financial crisis The volatility of the indices which means the relative rate at which the price of an index moves up and down is shown in table 2. The table reports about the standard deviation before and after financial crisis of the individual indices. While the F-test was applied to determine whether there is a significant difference between the pre-financial crisis and post-financial crisis volatility of the individual indices. H02= There was no significant difference in the before and during recession volatility. Table 2: Comparison of Volatility before and during100 days of financial crisis
Standard Deviation Indices PreFinancial Crisis PostFinancial Crisis F-test Hypothesis Not (5% Rejected/Rejected significance)

(1.683) 1.5741 2.0689344

Not Rejected Rejected

India(BSE-Sensex) Indonesia(Composite Index JKSE)

2.22539 1.48663

3.50300 3.07574

Malaysia (KLSE .91903 Composite) Spain (Madrid) 1.07849 Italy (MIBTEL) Switzerland(Swiss Market) Brazil (Bovespa) Argentina (Marvel) Chile (IPSA) 1.22256 1.21906 2.09788 1.57433 2.12320

1.39238 1.61389 3.09372 2.98116 5.88428 4.21344 1.55391

1.515039 1.49643 2.53026 2.44545 2.804869 2.676338 1.3669

Not Rejected Not Rejected Rejected Rejected Rejected Rejected Not Rejected

The result on the basis of standard deviation before and after 100days of financial crisis showed increase in volatility after the crisis in all the countries except Chile. For the given values of F, the values of Indonesia (2.0689344), Italy (2.53026) and Switzerland (2.44545) are more than the Standard value, 1.683, at 5% level of significance, so the null hypothesis in that case is rejected. This shows that there is significant difference in the post and pre listing volatility on these stocks exchanges. The results also indicated that the volatility of the stock exchanges also increased due to financial crisis. 3. Comparison of the pre and during recession volatility of different continents To test the significant difference between the pre and during recession volatility due to financial crisis we had applied SPANOVA with a factorial design
Box's Test of Equality of Covariance Matricesa Box's M F df1 df2 Sig. 2.573 .346 6 5.608E3 .913

Tests the null hypothesis that the observed covariance matrices of the dependent variables are equal across groups. a. Design: Intercept + CONTINENTS Within Subjects Design: TIME

An insignificant value of Boxs M test showed above that the groups do not differ from each other we can apply the SPANOVA. A mixed between-within group anova or SPANOVA was conducted to explain the impact of financial crisis on the indices volatility of the different continents before and during 100 days of financial crisis. The time period was divided into two categories pre and during recession and the results of multivariate test which was tested through Wilks Lambda showed the value 0.539, with a probability value 0.003. Because our p value is less than .05, we can conclude that there was a statistically significant effect for time i.e. pre and during 100 days of recession. This suggests that there was a change in the volatility due to financial crisis. Thus the main effect for the time was significant. Although we have found statistically significant difference among the time periods, we also need to assess the effect size of this result which was evaluated through partial eta square. The value obtained for the time in this study was 0.461. Using the commonly used guidelines proposed by Cohen (1988) (.01= small effect, .06=moderate effect, .14=large effect), this result suggests a very large effect size.

In addition to the main effect, we are also required to find out that there was a significant interaction effect was presented or not. In this the interaction effect was not statistically significant as the significance level for Wilks Lambda was 0.822 and p= 0.230.
Multivariate Testsc Effect TIME Pillai's Trace Wilks' Lambda Hotelling's Trace Roy's Largest Root TIME * CONTINENTS Pillai's Trace Wilks' Lambda Hotelling's Trace Roy's Largest Root a. Exact statistic b. Computed using alpha = .05 c. Design: Intercept + ONTINENTS Within Subjects Design: TIME Tests of Between-Subjects Effects Measure:MEASURE_1 Transformed ariable:Average Type III Sum of Squares 124.992 1.202 17.571 Partial Eta Squared .877 .064 Noncent. Parameter 106.704 1.026 Observed Powera 1.000 .119 Value .461 .539 .854 .854 .178 .822 .216 .216 F 12.815a 12.815 12.815
a a

Hypothesis df 1.000 1.000 1.000 1.000 2.000 2.000 2.000 2.000

Error df 15.000 15.000 15.000 15.000 15.000 15.000 15.000 15.000

Sig. .003 .003 .003 .003 .230 .230 .230 .230

Partial Eta Squared .461 .461 .461 .461 .178 .178 .178 .178

Noncent. Parameter 12.815 12.815 12.815 12.815 3.242 3.242 3.242 3.242

Observed Powerb .917 .917 .917 .917 .289 .289 .289 .289

12.815a 1.621a 1.621

a

1.621a 1.621a

Source Intercept CONTINENTS Error

Df 1 2 15

Mean Square 124.992 .601 1.171

F 106.704 .513

Sig. .000 .609

a. Computed using alpha = .05

Further the groups (continents) analysis showed that the main effect for the continents was not significant as the F (2, 0.513), p= 0.609 which was higher than p=0.05. However the post hoc comparisons using Turkey HSD test showed below indicated that the mean score for different countries differ either of the other groups but did not reach the statistically significant level. Thus we can conclude that there was no significant difference in the pre and during recession volatility of the three continents and the effect size was also low as showed by partial eta square= 0.064.

Multiple Comparisons MEASURE_1 Tukey HSD (I) (J) CONTI CONTI NENTS NENTS 1 2 3 2 3 1 3 1 2 95% Confidence Interval Mean Difference (I-J) -.3119 .1222 .3119 .4340 -.1222 -.4340 Std. Error .44185 .44185 .44185 .44185 .44185 .44185 Sig. .764 .959 .764 .599 .959 .599 Lower Bound -1.4596 -1.0255 -.8358 -.7137 -1.2698 -1.5817 Upper Bound .8358 1.2698 1.4596 1.5817 1.0255 .7137

4. Comparison of the pre and during recession returns of different continents.

Box's Test of Equality of Covariance Matricesa Box's M F df1 df2 Sig. 4.858 .653 6 5607.692 .688

Tests the null hypothesis that the observed covariance matrices of the dependent variables are equal across groups. a. Design: Intercept + CONTINENTS Within Subjects Design: PREPOST

An insignificant value of Boxs M test showed that the groups do not differ from each other we can apply the SPANOVA. A mixed between-within group anova or SPANOVA was conducted to explain the impact of financial crisis on the indices returns of the different continents before and during 100 days of financial crisis. The time period was divided into two categories pre and during recession and the results of multivariate test which was tested through Wilks Lambda showed the value 0.084, with a probability value 0.000. Because our p value is less than .05, we can conclude that there was a statistically significant effect for time i.e. pre and during 100 days of recession and that means there was a significant difference in the returns of pre and during crisis period. Thus the main effect for the time was significant. Although we have found statistically significant difference among the time periods, we also need to assess the effect size of this result which was evaluated through partial eta square. The value obtained for the time in this study was 0.916. Using the commonly used guidelines proposed by Cohen (1988) (.01= small effect, .06=moderate effect, .14=large effect), this result suggests a very large effect size. In addition to the main effect, we are also required to find out that there was a significant interaction effect was presented or not. In this the interaction effect was not statistically significant as the significance level for Wilks Lambda was 0.998 and p= 0.982 as shown in the below table of multivariate test.

Multivariate Testsc Hypothesis Error df df

a a a

Effect PREPOST Pillai's Trace Wilks' Lambda Hotelling's Trace Roy's Largest Root PREPOST * CONTINENTS Pillai's Trace Wilks' Lambda Hotelling's Trace Roy's Largest Root a. Exact statistic b. Computed using alpha = .05 c. Design: Intercept + CONTINENTS Within Subjects Design: PREPOST

Value .916 .084 10.901 10.901 .002 .998 .002 .002

F 163.510 163.510 163.510

Sig. .000 .000 .000 .000 .982 .982 .982 .982

Partial Eta Noncent. Observed Squared Parameter Powerb .916 .916 .916 .916 .002 .002 .002 .002 163.510 163.510 163.510 163.510 .037 .037 .037 .037 1.000 1.000 1.000 1.000 .052 .052 .052 .052

1.000 15.000 1.000 15.000 1.000 15.000 1.000 15.000 2.000 15.000 2.000 15.000 2.000 15.000 2.000 15.000

163.510a .018a .018a .018

a

.018a

Further the groups (continents) analysis showed that the main effect for the continents was not significant as the F (2, 0.019), p= 0.981 which was higher than p=0.05. However the post hoc comparisons using Turkey HSD test showed below indicated that the mean score for different countries differ either of the other groups but did not reach the statistically significant level. Thus we can conclude that there was no significant difference in the pre and during recession index returns of the three continents and the effect size was also low as showed by partial eta square= 0.003.
Tests of Between-Subjects Effects Measure:MEASURE_1 Transformed Variable:Average Type III Sum of Squares 15.124 .006 2.328 Partial Eta Squared .867 .003 Noncent. Parameter 97.462 .038 Observed Powera 1.000 .052

Source Intercept CONTINENTS Error

df 1 2 15

Mean Square 15.124 .003 .155

F 97.462 .019

Sig. .000 .981

a. Computed using alpha = .05

Multiple Comparisons MEASURE_1 Tukey HSD (I) (J) CONTIN CONTIN Mean Difference ENTS ENTS (I-J) 1.00 2.00 3.00 2.00 3.00 1.00 3.00 1.00 2.00 -.0064 -.0297 .0064 -.0234 .0297 .0234 95% Confidence Interval Std. Error .16082 .16082 .16082 .16082 .16082 .16082 Sig. .999 .981 .999 .988 .981 .988 Lower Bound -.4241 -.4475 -.4114 -.4411 -.3880 -.3943 Upper Bound .4114 .3880 .4241 .3943 .4475 .4411

Based on observed means. The error term is Mean Square(Error) = .078.

Conclusion The past financial crises have received increasing attention from the economic and financial literature, not due to their tremendous social and allocation costs but also due to their impact on the society in whole. Determining the nature of financial crises is crucial to explaining their occurrence and formulating policy recommendations so that it can be controlled in the future. But the recent financial crisis which has an immense effect on the whole world failed all the policy recommendations. The paper tried to find out the impact of the Lehman Brothers bankruptcy on the stock exchanges of the three continents that were Asia, South America and Europe. Finally, using several parametric techniques we offered support for some of the available explanations of financial crises in emerging economies by showing that there was a increase in volatility and change in returns before and during financial crisis. T-test results showed that there was no change in returns before and during recession but the Wilks Lambda showed that there was a significant difference in the before and during returns of the continents. Similar, results were depicted in case of volatility. Thus the study concluded that there was a significant difference in the volatility of Indonesia, Brazil, Argentina, Switzerland and Italy. References Agenor, P., Bhandari, B., amd Flood, R. (1992). Speculative Attacks and Models of Balance of Payments Crises. IMF Staff Papers, 39, 357394. Baig, T. and Goldfajn, I. (1999). Financial Market Contagion in the Asian crisis. IMF Staff Papers, 46. Bertero, E. and Mayer, C. (1989). Structure and Performance: Global Interdependence of Stock Markets around the Crash of October 1987. C.E.P.R. Discussion Papers, No. 307. Boyer, B. H., Kumagai, T. and Yuan K., (2006). How do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices. Journal of Finance, 66, 957-1003. Brown, S., Goetzmann, W., and Park, J. (2000). Hedge funds and the Asian currency crisis of 1997. Journal of Portfolio Management, 26, 95-10. Chang, R., and Velasco, A. (1999). Liquidity Crises in Emerging Markets: Theory and Policy. NBER Macroeconomic Annual, 1158.

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