Resource title

Asymmetric price movements and borrowing constraints: a rational expectations equilibrium model of crises, contagion, and confusion

Resource image

image for OpenScout resource :: Asymmetric price movements and borrowing constraints: a rational expectations equilibrium model of crises, contagion, and confusion

Resource description

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.

Resource author

Resource publisher

Resource publish date

Resource language

en

Resource content type

Resource resource URL

http://eprints.lse.ac.uk/39405/

Resource license