Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 29, 2018 erstellt
Description:
We use a heterogeneous agent model to explain market crashes resulting from an unanticipated deleveraging shock. In a market with short sale constraints, when the opinions of investors diverge substantially, the market price is set by the demand schedule of optimistic investors while pessimistic investors are crowded out. If a deleveraging shock forces optimistic investors to liquidate their risky assets to service their borrowings, the price has to fall discontinuously according to the demand schedule of the pessimistic investors for them to participate to absorb the reduced demand. This creates a liquidity problem in which the asset price experiences a free fall when no trading is possible. The deleveraging process further depresses prices until the liquidated assets are fully absorbed. Our model provides an explanation about the 2015 Chinese stock market crisis, when more than a thousand stocks hit the maximum -10% daily limit for 8 straight days. The cross-sectional variations of the price changes can be fit up to over 90%