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Leverage-Induced Fire Sales and Stock Market Crashes / Jiangze Bian, Zhiguo He, Kelly Shue, Hao Zhou.
- Format:
- Book
- Author/Creator:
- Bian, Jiangze.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w25040.
- NBER working paper series no. w25040
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2018.
- Summary:
- We provide direct evidence of leverage-induced fire sales contributing to a market crash using account-level trading data for brokerage- and shadow-financed margin accounts during the Chinese stock market crash of 2015. Margin investors heavily sell their holdings when their account-level leverage edges toward their maximum leverage limits, controlling for stock-date and account fixed effects. Stocks that are disproportionately held by accounts close to leverage limits experience high selling pressure and abnormal price declines which subsequently reverse. Unregulated shadow-financed margin accounts, facilitated by FinTech lending platforms, contributed more to the crash despite their smaller asset holdings relative to regulated brokerage accounts.
- Notes:
- Print version record
- September 2018.
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