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SUMMARY:Large Bets and Stock Market Crashes - Kyle\, P (University of Mary
 land)
DTSTART:20141022T150000Z
DTEND:20141022T160000Z
UID:TALK55559@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:We use market microstructure invariance\, as developed by Kyle
  and Obizhaeva (2011a)\, to examine the price impact and frequency of larg
 e stock market sales documented for the following stock market crash event
 s: the stock market crash late of October 1929\; the stock market crash of
  October 19\, 1987\; the sales of George Soros on October 22\, 1987\; the 
 liquidation of Jerome Kerviel's rogue trades by Socit Gnrale in January 20
 08\; and the flash crash of May 6\, 2010. Actual price declines are simila
 r in magnitude to declines predicted based on parameters estimated from po
 rtfolio transitions data by Kyle and Obizhaeva (2011b). The two flash cras
 h events had larger price declines than predicted\, with immediate rapid V
 -shape recoveries. The slower moving 1929 crash had smaller price declines
  than predicted. Reconciling the predicted frequency of crashes to observe
 d frequencies requires the distribution of quantities sold either to have 
 fatter tails than a log-normal or a larger variance than estimated from po
 rtfolio transitions data. Using data available to market participants befo
 re these crash events\, microstructure invariance leads to reasonable pred
 ictions of the impact of these systemic crash events.\n
LOCATION:Seminar Room 1\, Newton Institute
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