Impact of Global Recession on returns of Dow Jones Index and other Selected Stock Indices and possibility of diversification within all selected indices

Abstract

This research is primarily concerned with the impact of global recession on the performance of selected stock indices for particular time spans from December 2004 to August 2013. Selected stock indices are Dow Jones Industrial Average index (DJIA), FTSE 100 index, Hang Seng Index (HSI) and DAX index. The second aspect of this research is to guide American investor for making decision regarding the investment portfolio diversification internationally. As this research has been done in an American perspective so Dow Jones Index’s performance was compared with rest of the indices to do comparative analysis between selected indices and propose investment opportunities for American investors. In the beginning of the research relevant literature has been used to identify the causes of the recession in US. Additionally, Impact of recession on US equity market and its integration with the global markets were also discussed. After that theory of financial models like Capital Asset Pricing Model (CAPM) and Modern Portfolio Theory (MPT) were discussed in order to explain how they work to calculate risk and return. In this research secondary data has been collected from yahoo finance and analysed in two different analytical approaches which are fundamental analysis and technical analysis. In the fundamental analysis correlations and standard deviations have been calculated for all selected indices. In the technical analysis technical indicators including RSI (Relative Strength Index), MACD (Moving Average Convergence/Divergence) and Bollinger bands has been used. Both data analyses techniques have been used to read market situation for all selected indices. While conducting this research it was found that most recent recession in US impacted returns and sales volume of all selected indices between years 2007 to 2009. And it has been validated by both analytical methods used in this research (fundamental and technical). In the conclusion of the study it has been discussed in detail that there is a possibility of investment diversification and American investors can use this as opportunity to reduce their investment risk and maximize their returns on investment.