Amplification and asymmetry in crashes and frenzies
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...
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| Format: | Working paper |
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University of Oxford
2005
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| _version_ | 1797066554560479232 |
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| author | Ozsoylev, H |
| author_facet | Ozsoylev, H |
| author_sort | Ozsoylev, H |
| collection | OXFORD |
| description | 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. |
| first_indexed | 2024-03-06T21:43:44Z |
| format | Working paper |
| id | oxford-uuid:48d24d78-cc2c-40f7-bbee-fed4f41d52ca |
| institution | University of Oxford |
| last_indexed | 2024-03-06T21:43:44Z |
| publishDate | 2005 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:48d24d78-cc2c-40f7-bbee-fed4f41d52ca2022-03-26T15:28:00ZAmplification and asymmetry in crashes and frenziesWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:48d24d78-cc2c-40f7-bbee-fed4f41d52caBulk import via SwordSymplectic ElementsUniversity of Oxford2005Ozsoylev, HWe 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. |
| spellingShingle | Ozsoylev, H Amplification and asymmetry in crashes and frenzies |
| title | Amplification and asymmetry in crashes and frenzies |
| title_full | Amplification and asymmetry in crashes and frenzies |
| title_fullStr | Amplification and asymmetry in crashes and frenzies |
| title_full_unstemmed | Amplification and asymmetry in crashes and frenzies |
| title_short | Amplification and asymmetry in crashes and frenzies |
| title_sort | amplification and asymmetry in crashes and frenzies |
| work_keys_str_mv | AT ozsoylevh amplificationandasymmetryincrashesandfrenzies |