January 2008 stock market volatility

January 2008 was an especially volatile month in world stock markets, with a surge in implied volatility measurements of the US-based S&P 500 index [ [http://www.economist.com/displaystory.cfm?story_id=10635708 Markets, Uncertain Times] , The Economist, February 4, 2008] , and a sharp decrease in non-U.S. stock market prices on Monday, January 21, 2008 (continuing to a lesser extent in some markets on January 22). Some headline writers and a general news columnist called January 21 "Black Monday" and referred to a "global shares crash," [cite news |first=Peter |last=MacMahon |title=Market falls continue as £84bn is lost on Black Monday |url=http://business.scotsman.com/economics/84bn-lost-on-Black-Monday.3695586.jp |work=The Scotsman |publisher=Johnston Press Digital Publishing |date=2008-01-22 |accessdate=2008-01-25] [Sources including:

*cite news |first=Dong |last=Zhixin |title= Black Monday for Chinese stocks, down 5% |url=http://www.chinadaily.com.cn/bizchina/2008-01/21/content_6409697.htm |work=China Daily |date=2008-01-21 |accessdate=2008-01-25
*cite news |first=Joe |last=Warmington |title=Black Monday again |url=http://www.torontosun.com/News/Columnists/Warmington_Joe/2008/01/22/4786629-sun.php |work=Toronto Sun |publisher=Conoe, Inc |date=2008-01-22 |accessdate=2008-01-25
*cite news |first=Greg |last=Wilson |title=It's a Black Monday as stock markets tank in every corner of the globe |url=http://www.nydailynews.com/money/2008/01/22/2008-01-22_its_a_black_monday_as_stock_markets_tank.html |work=Daily News |publisher=NYDailyNews.com |date= 2008-01-22 |accessdate=2008-01-25] though the effects were quite different in different markets.

American stock markets were closed on Monday, January 21 for Martin Luther King, Jr. Day. Seemingly in response to the fall in non-U.S. markets ["The Fed has always strenuously denied use of monetary policy to shield equity investors." [http://www.dailytimes.com.pk/print.asp?page=2008%5C02%5C17%5Cstory_17-2-2008_pg5_30] Officially, the Fed "took this action in view of a weakening of the economic outlook and increasing downside risks to growth", and not due to stock market activity [http://www.federalreserve.gov/newsevents/press/monetary/20080122b.htm] ] , the U.S. Federal Reserve announced a surprise rate cut of 0.75% on Tuesday at 8 a.m. This rate cut is believed to have been influential in preventing large declines in the American stock markets, with the Dow Jones Industrial Average down only 1.1% for the day, never closing that week worse than a 1.6% decrease from the previous Friday, and indeed closed up for the week. Later it was announced that
Société Générale, one of the largest banks in Europe, accused its employee Jérôme Kerviel of fraudulent trades costing it €4.9 billion, and causing it to sell approximately €50 billion in European equity derivatives from January 21–23.

The effects of these events were also felt on the Shanghai Composite Index in China which lost 5.14 percent, most of this on financial stocks such as Ping An Insurance and China Life which lost 10 and 8.76 percent respectively. [http://www.chinadaily.com.cn/bizchina/2008-01/21/content_6409697.htm] Investors worried about the effect of a recession in the US economy would have on the Chinese economy. Citigroup estimates due to the number of exports from China to America a one percent drop in US economic growth would lead to a 1.3 percent drop in China's growth rate.

ee Also

*Economic crisis of 2008

References