Financial Market Dislocations

Paolo Pasquariello

The Review of Financial Studies, 2014, vol. 27, issue 6, 1868-1914

Abstract: Dislocations occur when financial markets, operating under stressful conditions, experience large, widespread asset mispricings. This study documents systematic dislocations in world capital markets and the importance of their fluctuations for expected asset returns. Our novel, model-free measure of these dislocations is a monthly average of hundreds of individual abnormal absolute violations of three textbook arbitrage parities in stock, foreign exchange, and money markets. We find that investors demand statistically and economically significant risk premiums to hold financial assets performing poorly during market dislocations, that is, when both frictions to the trading activity of speculators and arbitrageurs and their marginal utility of wealth are likely to be high.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhu007 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:27:y:2014:i:6:p:1868-1914.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().