| Titre | Feedback effects and endogenous risk in financial markets | |
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| Auteur | Lakshithe Wagalath | |
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Revue | Finance |
| Numéro | volume 37, no 2, 2016 Varia | |
| Page | 39-74 | |
| Résumé |
Cet article développe un cadre général pour modéliser les effets de feedback générés par le trading (systématique) de larges institutions financières. Le modèle permet d'obtenir des expressions tractables liant les volatilités et corrélations d'actifs financiers aux stratégies de trading des institutions financières. Ce type de résultats est intéressant non seulement dans une perspective de gestion du risque car permettant d'anticiper ces phénomènes de liquidité dus au feedback mais également pour quantifier le risque systémique généré par la contagion indirecte par les prix. Source : Éditeur (via Cairn.info) |
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| Résumé anglais |
This paper studies feedback effects and endogenous risk in financial markets. In order to model those effects in a non parsimonious manner, we propose a general framework of a financial market with multiple assets which takes into account feedback effects from systematic trading by large financial institutions and which is flexible enough to incorporate the impact of any type of trading strategy that can be source of feedback. The model yields tractable formulas linking realized volatilities and correlations to the strategies followed by large financial institutions and the asset liquidities and shows that, in the presence of feedback effects, asset dynamics may deviate significantly from fundamentals and be driven more by the market capitalizations and strategies of large financial institutions. We quantify the price-mediated contagion to other investors generated by feedback effects and give a decomposition of endogenous risk between a volatility component and a correlation component. The results developed in this paper are useful in a risk-management perspective as they provide a flexible framework to better tackle and anticipate liquidity events caused by large trades and also in a systemic risk-management perspective as they enable to quantify price-mediated contagion. Source : Éditeur (via Cairn.info) |
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| Article en ligne | http://www.cairn.info/article.php?ID_ARTICLE=FINA_372_0039 |
