Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/221608
Authors: 
Barlevy, Gadi
Veronesi, Pietro
Year of Publication: 
1999
Series/Report no.: 
Discussion Paper No. 1252
Abstract: 
stock market crash on hedging strategies by portfolio insurers, which dictated selling stocks as soon as prices fell. The fact that the practice of buying and selling stocks as portfolio insurance has virtually disappeared since then has given many comfort that a replay of the 1987 crash, when prices fell so much so quickly, is unlikely. This note argues with this view by developing a model in which crashes are possible in the absence of portfolio insurance. In our model, a crash is driven by panic selling among rational but uninformed traders.
Subjects: 
Giffen Effect
Portfolio Insurance
Hedging Demand
Market Crashes
JEL: 
G14
D82
D84
Document Type: 
Working Paper

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