Risk bubbles and market instability
Marsili, Matteo, 1966- and Raffaelli, G. (Giacomo) (2006) Risk bubbles and market instability. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.06-).
WRAP_Marsili_fwp06-22.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
We discuss a simple model of correlated assets capturing the feedback effects induced by portfolio investment in the covariance dynamics. This model predicts an instability when the volume of investment exceeds a critical value. Close to the critical point the model exhibits dynamical correlations very similar to those observed in real markets. Maximum likelihood estimates of the model’s parameter for empirical data indeed confirms this conclusion. We show that this picture is confirmed by the empirical analysis for different choices of the time horizon.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School
|Library of Congress Subject Headings (LCSH):||Portfolio management, Analysis of covariance, Risk assessment, Estimation theory|
|Series Name:||Working papers (Warwick Business School. Financial Econometrics Research Centre)|
|Publisher:||Warwick Business School, Financial Econometrics Research Centre|
|Place of Publication:||Coventry|
|Official Date:||12 January 2006|
|Number of Pages:||14|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
 Challet D., Marsili M. and Zhang Y-C. Minority Games. Interacting agents in financial markets Oxford University Press (Oxford, 2004)
Actions (login required)
Downloads per month over past year