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In this study I want to examine the relationship between market financial conditions and sector prices. The basis for the study is the 2008 financial crisis that started in the housing sector and spread to the banking system, culminating in a bank bailout by the U.S government. At the same time, the stock market experienced a major downswing in 2008 running through the 1st quarter, 2009. I plan to use the Chicago Federal Reserve’s National Financial Conditions Index (NFCI) as a proxy for financial conditions in the U.S. economy. NFCI is a weighted average of 100 financial and economic indicators. It is by far the broadest indicator of the state of financial stability in the U.S. NFCI essentially indicates whether financial conditions are tightening or loosening. The NFCI index can also be divided into three sub-indexes: (1) Risk (2) Credit and (3) Leverage. I will also examine their relationship with sector prices. The 10 S&P 500 exchange traded funds will be used to represent the 10 S&P sectors. The period of analysis is 2002-2013 with 2013 the out of sample period. Monthly data is used to examine the relationship between the NFCI and the 10 S&P 500 sectors.

Publication Date


Project Designation

Independent Research

Primary Advisor

Robert Dean, Trevor Collier

Primary Advisor's Department

Economics and Finance


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