Market Liquidity, Hedging and Crashes
In the absence of significant news, hedging strategies were blamed for the stock market crash of October 1987; but traditional models cannot explain how a relatively small amount of selling could cause so large a price drop. The authors develop a rational expectations model in which prices play an important role in shaping expectations; markets are much less liquid in their model than in traditional models. Discontinuities (or "crashes") can occur even with relatively little hedging. The model is consistent with theories as disparate as Keynes' "beauty contest" insights and Thom's "catastrophe" analysis and suggests means to reduce volatility. Copyright 1990 by American Economic Association.
(This abstract was borrowed from another version of this item.)
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||01 Dec 1989|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://haas.berkeley.edu/finance/WP/rpflist.html
More information through EDIRC
|Order Information:|| Postal: IBER, F502 Haas Building, University of California at Berkeley, Berkeley CA 94720-1922|
When requesting a correction, please mention this item's handle: RePEc:ucb:calbrf:rpf-192. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.