Graduation Year


Date of Submission


Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts



Reader 1

Eric Hughson

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Rights Information

© 2017 Ammar S. Karmali


In this paper, I examine the top ten historical upward and downward daily shocks in the Dow Jones Industrial Average, and test whether industry specific abnormal returns can be explained by industry specific leverage ratios on those days. I use modified versions of the Capital Asset Pricing Model and the Fama French 3 Factor regression to examine within-industry abnormal returns. I then proceed to rank the industry abnormal returns and industry leverage ratios, from high to low, on days corresponding to these large shocks. Finally, I examine the correlation between these ranks on the days corresponding to the large moves. The results show that on upward moving days, there is no relationship between industry abnormal returns and industry leverage. However, on downward moving days, there is moderate negative correlation between industry abnormal returns and leverage, suggesting that higher leverage leads to lower abnormal returns. This paper explains these results in further detail, and discusses the implications to the greater field of financial economics.

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