Optimal delay: Distressed trading in 18th c. Amsterdam
AbstractDistressed sales (or purchases) often lead to a V-shaped pattern in asset prices. We investigate the underlying dynamics of this overshooting of the price in a unique historical setting. We present detailed transaction data for two cases of distressed trading in the Amsterdam stock market in 1772 and 1773. We show that there is an interesting disconnect between the realization of the shock and price overshooting on the one hand, and the actual distressed trading on the other. A large fraction of trades were delayed until the overshooting of the price had been corrected. Using qualitative sources we document significant contemporary uncertainty about the size of the shock. We argue that a model based on this uncertainty could potentially explain the disconnect between price overshooting and the timing of transactions.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1343.
Date of creation: Sep 2011
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