Yuan, Kathy (2005) Asymmetric price movements and borrowing constraints: a rational expectations equilibrium model of crises, contagion, and confusion. The Journal of Finance, 60 (1). pp. 379-411. ISSN 0022-1082
Abstract
This study proposes a rational expectations equilibrium model of crises and contagion in an economy with information asymmetry and borrowing constraints. Consistent with empirical observations, the model finds: (1) Crises can be caused by small shocks to fundamentals; (2) market return distributions are asymmetric; and (3) correlations among asset returns tend to increase during crashes. The model also predicts: (1) Crises and contagion are likely to occur after small shocks in the intermediate price region; (2) the skewness of asset price distributions increases with information asymmetry and borrowing constraints; and (3) crises can spread through investor borrowing constraints.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.afajof.org/ |
| Additional Information: | © 2005 The American Finance Association |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| Journal of Economic Literature Classification System: | C - Mathematical and Quantitative Methods > C5 - Econometric Modeling D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates |
| Sets: | Departments > Finance Collections > Economists Online |
| Date Deposited: | 10 Nov 2011 11:31 |
| URL: | http://eprints.lse.ac.uk/39405/ |
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