1999 Fiscal Year Final Research Report Summary
Market Liquidity and Self-Organization by way of global Competition among financial Centers
| Project/Area Number |
10630005
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
経済理論
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| Research Institution | Shinshu University |
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Principal Investigator |
AOKI Tatsuhiko Faculty of Economics, Shinshu University, Professor, 経済学部, 教授 (50092854)
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| Project Period (FY) |
1998 – 1999
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| Keywords | cross-market linkage / market liquidity / expectation formation / portfolio manager / noise-trader model / financial contagion / reflexivity / positive feedback |
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| Research Abstract |
Our research concerns the problem of stability or systemic risk of global financial market, paying attention to the increase of price volatility ,by way of focusing on market liquidity in the economy where each financial center thrives to compete the others by enhancing efficiency and vitalization in security markets. It surveys the difficulties which specialists in the NYSE have been experiancing to secure price continuities and market depth since the introduction of brock trading among institutional investors. In particular, we focused on derivatives (futures, options) traded by them on "upstairs" to reduce transaction costs, which give rise to price effects to cash (spot) markets, through which create chances of arbitrage. However, such a chance of arbitrage can bring difficulties to specialists to perform market-making, about which we scrutinise taking portfolio insurance in Black Monday as an example of the case of "the illusion of market liquidity". The above leads to the adoptio
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n of 'Noise Trader (NT) model' as a relevant framework to analise the stability problem in financial market. At the same time we propose to 'extend' the NT model to take into consideration the elements of shortening of portfolio managers' scope and behavioral peculialities (such as positive feedback trade and herd behavior) and to surpass the model which asserts that the proportion between value traders and non-value traders is crucial to the birth of market crush. In addition, we are considering the implication and impact of 'reflexivity' between market valuation and fundamentals advacated by G. Solos, on the behavior of the system. We think this reflexivity can be demonstrated in the movement of discount of 'closed-end' country fund in the era of emerging markets' crises. We had planned to perform simulation analysis to analyze the mechanism of market crash of the economy which builds in the reflexivity, and financial contagion initiated by the 'reverse' of asset valuation brought by interest increases. In addition, we were to present 'self-organising economy' as a long-term equilibrium replacing the traditional one. However we couldn't execute it. Less
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Research Products
(4 results)
