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A perfect storm in the financial market
- Authors
- Chung, Chune Young; Hur, Seok-Kyun; Wang, Kainan
- Issue Date
- Aug-2022
- Publisher
- Elsevier B.V.
- Keywords
- Beta distribution; Capital asset pricing model; Financial crisis; Market crash
- Citation
- Journal of Financial Stability, v.61
- Journal Title
- Journal of Financial Stability
- Volume
- 61
- ISSN
- 1572-3089
1878-0962
- Abstract
- This study provides a model explaining how small changes in asset prices may disrupt an entire financial market. Based on the capital asset pricing model (CAPM), our model implies that during a market crash, asset price changes affect the relative distribution of the CAPM betas of individual assets and force all tradable assets to co-move. Using US stock market data, our empirical results are consistent with the model's predictions. Overall, the study aids understanding of the price patterns of assets during substantial market downturns, such as financial crises. © 2022
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