[Research Seminar 2017.10.27.] The More Efficient, the More vulnerable!

제 4회 UNIST 빅데이터 심포지엄
10/30/2017
2017년 11월 1차 연구세미나 공지(Notice of research seminar 1, Nov)
11/13/2017

[Research Seminar 2017.10.27.] The More Efficient, the More vulnerable!

KakaoTalk_20171030_094627215

Speaker : Dong-Hyun Ahn/President Seoul National University Korea Capital Market Institute

 

Abstract:

We extend the limited arbitrage model of Shleifer and Vishny (1997) to an intertem-poral model while simplifying a funding cost structure. The model implies that the equilibrium price is more volatile during a crash than during a tranquil market period. More importantly, a seemingly more efficient market is more vulnerable to a crash and shows more extreme tail volatility and a larger difference between tail volatility and non-tail volatility. We empirically examine such implications in a U.S. interest rate swap market. The mean-reversion speeds of slope and butterfly spreads between swap yields are strongly associated with tail behavior of those spreads, which is in compliance with our model.