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Why Does Bad News Increase Volatility and Decrease Leverage?
Ms.Ana FostelMr.John Geanakoplos
出版International Monetary Fund, 2010-09-01
主題Business & Economics / Economics / MacroeconomicsBusiness & Economics / Industries / Financial ServicesBusiness & Economics / Investments & Securities / Bonds
ISBN14552053709781455205370
URLhttp://books.google.com.hk/books?id=qEkZEAAAQBAJ&hl=&source=gbs_api
EBookSAMPLE
註釋The literature on leverage until now shows how an increase in volatility reduces leverage. However, in order to explain pro-cyclical leverage it assumes that bad news increases volatility. This paper suggests a reason why bad news is more often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest mostly in technologies that become volatile in bad times. Together with the old literature this explains pro-cyclical leverage. The result also gives rationale to the pattern of volatility smiles observed in the stock options since 1987. Finally, the paper presents for the first time a dynamic model in which an asset is endogenously traded simultaneously at different margin requirements in equilibrium.