Earticle

초록

영어

We develop a market model to illustrate synchronized market runs by informed and rational hedge funds. A hedge fund’s capital structure is fragile because uninformed fund investors are highly loss sensitive and easily withdraw capital in response to bad news. Hedge fund managers, sharing common investors and interacting with each other through market price, sensitively react to other funds’ investment decisions. In this environment, we use a global game technique to show the likelihood of panic-based market runs arising not because of systematic risk but because of the fear of runs. We also find that when the market regime changes from a normal state (in which runs are impossible) to a “bad” state (in which runs are possible), hedge funds reduce investment prior to runs. In addition, by calculating the ex ante probability of market runs, the model shows that they are more likely to occur in a market where hedge funds hold greater market exposure and uninformed traders have greater sensitivity to past price movement. Our findings help to understand the relation between stock price deterioration and resulting hedge funds’ reactions, such as the quick leverage reduction and stock market exodus observed during the global financial crisis of 2007–2009.

목차

ABSTRACT
 1. Introduction
 2. Model
 3. Equilibrium
  3.1. State I: Runs are impossible
  3.2. State II: Runs are possible
 4. Environmental changes and fund manager decisions
  4.1. Effect of the possibility of a panic-based market run on fund asset allocation
  4.2. Effect of unexpected changes in price sensitivity on the probability of market runs
 5. Conclusion
 Appendix
 References

키워드

저자

• Sangwook Sung [ School of Management Engineering, Korea Advanced Institute of Science and Technology ] Corresponding author
• Hoon Cho [ School of Management Engineering, Korea Advanced Institute of Science and Technology ]

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간행물

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• 간행물명

  한국재무학회 학술대회

• 간기

  부정기

• 수록기간

  2006~2024

• 십진분류

  KDC 325 DDC 330