Amplification and Asymmetry in Crashes and Frenzies
Han Ozsoylev ()
OFRC Working Papers Series from Oxford Financial Research Centre
We often observe disproportionate reactions to tangible information in large stock price movements. Moreover these movements feature an asymmetry: the number of crashes is more than that of frenzies in the S&P 500 index. This paper offers an explanation for these two characteristics of large movements in which hedging (portfolio insurance) causes amplified price reactions to news and liquidity shocks as well as an asymmetry biased towards crashes. Risk aversion of traders is shown to be essential for the asymmetry of price movements. Also, we show that differential information enhances both amplification and asymmetry delivered by hedging.
JEL-codes: G11 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-fmk
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found
Journal Article: Amplification and asymmetry in crashes and frenzies (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:sbs:wpsefe:2005fe11
Access Statistics for this paper
More papers in OFRC Working Papers Series from Oxford Financial Research Centre Contact information at EDIRC.
Bibliographic data for series maintained by Maxine Collett ().