January 2008 stock market volatility

Source : wikipedia

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,[214] 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,"[215][216] 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,[217] 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.[218] 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.

[edit] Market downturn Fall 2008
Main article: Global financial crisis of 2008
As of October 2008, stocks in North America, Europe, and the Asia-Pacific region had all fallen by about 30% since the beginning of the year.[219] The Dow Jones Industrial Average had fallen about 37% since January 2008.[220]
There were several large Monday declines in stock markets world wide during 2008, including one in January, one in August, one in September, and another in early October.
The simultaneous multiple crises affecting the US financial system in mid-September 2008 caused large falls in markets both in the US and elsewhere. Numerous indicators of risk and of investor fear (the TED spread, Treasury yields, the dollar value of gold) set records.[221]
Russian markets, already falling due to declining oil prices and political tensions with the West, fell over 10% in one day, leading to a suspension of trading,[222] while other emerging markets also exhibited losses.[223]
On September 18, UK regulators announced a temporary ban on short-selling of financial stocks.[224] On September 19 the United States' SEC followed by placing a temporary ban of short-selling stocks of 799 specific financial institutions. In addition, the SEC made it easier for institutions to buy back shares of their institutions. The action is based on the view that short selling in a crisis market undermines confidence in financial institutions and erodes their stability.[225]
On September 22, the Australian Securities Exchange (ASX) delayed opening by an hour [226] after a decision was made by the Australian Securities and Investments Commission (ASIC) to ban all short selling on the ASX.[227] This was revised slightly a few days later.[228]
As is often the case in times of financial turmoil and loss of confidence, investors turned to assets which they perceive as tangible or sustainable. The price of gold rose by 30% from middle of 2007 to end of 2008. A further shift in investors’ preference towards assets like precious metals [229] or land [230] [231] is discussed in the media.