An Autopsy of a Total Stock Market Failure

Ioannis V. Floros, David Florysiak, Shane M. Johnson

Research output: Contribution to conference without publisher/journalPaperResearch

Abstract

We study a unique case in which a stock market experienced an Akerlof-type failure. We find that a relatively small fraction of ‘bad’ firms combined with high levels of asymmetric information led to a series of Akerlof-type spillovers onto good firms evident in increased trading costs and reduced liquidity and volume. As good firms suffered adverse pricing effects, they exited the market, leading to increases in the fraction of bad firms and further deterioration in the market. Regulators intervened attempting to rescue the market, but the problems accelerated; regulators ultimately shut down the market. Our work sheds light on how stock markets with low transparency and low listing requirements can fail with even just a small fraction of bad firms.
Original languageEnglish
Publication date2018
Publication statusPublished - 2018
EventFMA European Conference - Kristiansand, Norway
Duration: 13. Jun 201815. Jun 2018

Conference

ConferenceFMA European Conference
CountryNorway
CityKristiansand
Period13/06/201815/06/2018

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Stock market
Market failure
Asymmetric information
Liquidity
Spillover
Pricing
Deterioration
Trading costs
Transparency

Cite this

Floros, I. V., Florysiak, D., & Johnson, S. M. (2018). An Autopsy of a Total Stock Market Failure. Paper presented at FMA European Conference, Kristiansand, Norway.
Floros, Ioannis V. ; Florysiak, David ; Johnson, Shane M. / An Autopsy of a Total Stock Market Failure. Paper presented at FMA European Conference, Kristiansand, Norway.
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Floros, IV, Florysiak, D & Johnson, SM 2018, 'An Autopsy of a Total Stock Market Failure' Paper presented at, Kristiansand, Norway, 13/06/2018 - 15/06/2018, .

An Autopsy of a Total Stock Market Failure. / Floros, Ioannis V.; Florysiak, David; Johnson, Shane M.

2018. Paper presented at FMA European Conference, Kristiansand, Norway.

Research output: Contribution to conference without publisher/journalPaperResearch

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T1 - An Autopsy of a Total Stock Market Failure

AU - Floros, Ioannis V.

AU - Florysiak, David

AU - Johnson, Shane M.

PY - 2018

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N2 - We study a unique case in which a stock market experienced an Akerlof-type failure. We find that a relatively small fraction of ‘bad’ firms combined with high levels of asymmetric information led to a series of Akerlof-type spillovers onto good firms evident in increased trading costs and reduced liquidity and volume. As good firms suffered adverse pricing effects, they exited the market, leading to increases in the fraction of bad firms and further deterioration in the market. Regulators intervened attempting to rescue the market, but the problems accelerated; regulators ultimately shut down the market. Our work sheds light on how stock markets with low transparency and low listing requirements can fail with even just a small fraction of bad firms.

AB - We study a unique case in which a stock market experienced an Akerlof-type failure. We find that a relatively small fraction of ‘bad’ firms combined with high levels of asymmetric information led to a series of Akerlof-type spillovers onto good firms evident in increased trading costs and reduced liquidity and volume. As good firms suffered adverse pricing effects, they exited the market, leading to increases in the fraction of bad firms and further deterioration in the market. Regulators intervened attempting to rescue the market, but the problems accelerated; regulators ultimately shut down the market. Our work sheds light on how stock markets with low transparency and low listing requirements can fail with even just a small fraction of bad firms.

M3 - Paper

ER -

Floros IV, Florysiak D, Johnson SM. An Autopsy of a Total Stock Market Failure. 2018. Paper presented at FMA European Conference, Kristiansand, Norway.