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Analysing the Disruptive Effect of Economic Downturns on Stock Market Crashes in European Financial Markets

Author

Listed:
  • Valentin Marian Antohi
  • Monica Laura Zlati
  • Romeo Victor Ionescu
  • Marius Sorin Dinca
  • Costinela Fortea

Abstract

Purpose: Earlier this year in March, European financial markets faced a financial crisis generated by security incidents in America ending with the failure of Silicon Valley and Signature Bank. This was a time when the intervention of guarantee bodies was needed to temper the financial shock. Design/Methodology/Approach: The methods consist of quantifying the analyses’ effects of the economic slowdown on stock market prices by identifying the risk of a stock market crash through an analysis of stock market prices in Frankfurt, Paris, Madrid, Milan and Amsterdam. As a result, we proposed five new econometric models regarding risks on financial markets. Findings: We appreciate that uncertainty conditions manifest a direct influence on economic deceleration, there is a knock-on effect of the main drivers of uncertainty, hyperinflation, rising interest rates, economic deceleration and financial quotes of companies traded on financial markets. The effects of the financial shock manifested itself in the decline of shares of several regional banks such as First Republic Bank, Western Alliance Bancorporation and PacWest Bancorp. There have also been effects in Europe, the biggest being the collapse of the giant Credit Suisse, which was taken over by UBS as a solution to restore confidence in the financial mechanisms of the European markets Practical impliations: The results of the study will highlight the effect of economic stress on the magnitude of price movements and the conditions for triggering stock market crashes. Orginality value: The results of the study will be useful tools for financial decision-makers to increase the level of financial security and could form the basis for changes in the financial strategy of listed entities.

Suggested Citation

  • Valentin Marian Antohi & Monica Laura Zlati & Romeo Victor Ionescu & Marius Sorin Dinca & Costinela Fortea, 2024. "Analysing the Disruptive Effect of Economic Downturns on Stock Market Crashes in European Financial Markets," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 383-396.
    • Handle: RePEc:ers:journl:v:xxvii:y:2024:i:1:p:383-396
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    References listed on IDEAS

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    More about this item

    Keywords

    Uncertainty; economic deceleration; financial market; financial mechanisms; economic slowdown.;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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