Reaction of Various Industries in the Financial Crisis of 2007-2009 and Their Impacts on the Taiwan Stock Market

The ongoing European sovereign debt crisis underlines the importance of risk control and invokes a growing concern with the market fragility in the economic community. To possess a comprehensive knowledge about the development of volatility due to crises, we re-examine the market behaviours and industrial reactions in the financial disaster of 2007-2009. Utilizing BEKK-GARCH models, we find stock movements, unexpected events, and states of different industries have capacity to influence market stability. Among these industries, the financial sector plays a particular role in affecting stability during financial crises. The stock market also displays an abundant variety of behaviors in reaction to unexpected events occurring in each industry. After classifying innovations into positive and negative shocks, we find the leverage effect absent in most industries