Research has shown that major causes of financial crises, like leverage and the overvaluation of financial assets, are due to the recurring problem of excessive financial risk-taking in financial...Show moreResearch has shown that major causes of financial crises, like leverage and the overvaluation of financial assets, are due to the recurring problem of excessive financial risk-taking in financial markets. This thesis examines whether using a more conservative investment approach could make financial crises less likely - and to do so, I focus on value investing as the example of a conservative investment approach. Value investing is a small, but persistent niche in the financial markets, whose core ideas are inversely correlated to some of the main causes for financial crises. It cautions against large amounts of debt, argues for conservatively valuing financial assets, and warns that humans are fallible beings that don’t always behave rational in financial markets. Using the dot- com crisis and the Great Recession of 2007-2009 in the United States as study cases, I find that there is compelling evidence that a conservative investment approach can potentially make financial crises less likely by reducing exposure on over-leveraged assets, avoiding overvalued assets and counter the misleading assumption of human infallibility in the financial markets.Show less
The Global Financial crisis of 2008 reached countries all around the world while the United States and Europe experienced their worst economic contraction in the last 75 years. There was a fear...Show moreThe Global Financial crisis of 2008 reached countries all around the world while the United States and Europe experienced their worst economic contraction in the last 75 years. There was a fear that the economic turmoil would also severely impact Latin American countries, which had already experienced several crises in recent decades. However, what baffled many experts was how Latin America reacted to the crisis of 2008. Contrary to the reservations of the experts, Latin America emerged from the crisis with only limited damage. In this paper, the impacts of the crisis and the regions reaction to the economic contraction will be analysed in the context of Mexico and Brazil. The aim is to compare the two countries to establish a thorough understanding of the crisis and its country specific implication while providing an answer to the surprising economic resilience of Latin American countries.Show less
