The Instability of Markets

T. Hogg, B. A. Huberman () and M. Youssefmir

Working Papers from Xerox Research Park

Abstract: Recent developments in the global liberalization of equity and currency markets, coupled to advances in trading technologies, are making markets increasingly interdependent. This increased fluidity raises questions about the stability of the international financial system. In this paper, we show that as couplings between stable markets grow, the likelihood of instabilities is increased, leading to a loss of general equilibrium as the system becomes increasingly large and diverse.

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