The Consequences of Short-Sale Constraints on the Stability of Financial Markets

1. Front Matter

   Pages i-xv

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2. Introduction

   • Gevorg Hunanyan

   Pages 1-7

3. Portfolio Selection

   • Gevorg Hunanyan

   Pages 9-32

4. CAPM Equilibrium

   • Gevorg Hunanyan

   Pages 33-44

5. Dynamic Model

   • Gevorg Hunanyan

   Pages 45-60

6. Security Market Line

   • Gevorg Hunanyan

   Pages 61-78

7. Conclusion

   • Gevorg Hunanyan

   Pages 79-80

8. Back Matter

   Pages 81-117

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Gevorg Hunanyan develops a model that provides a comprehensive theoretical framework to study the consequences of short-sale constraints on the stability of financial markets. This model shows that overpricing of securities is solely attributable to the subjective second moment beliefs of investors. Thus, short-sale constraints prevent a market decline only if investors have low dispersion of beliefs, which in the model is embodied in the covariance matrix. Moreover, the author analyses the consequences of short-sale constraints on the investor’s portfolio selection, risk-taking behaviour as well as default probability. The author develops criteria that allow to analyse the effectiveness of short-sale constraints in reducing portfolio risk as well as default risk.

• Short-Sale
• Regulation
• CAPM
• Equilibrium
• Agent-Based Modelling
• Financial Markets
• Stability
• Systematic Risk
• Mean-Variance Efficiency

• Technical University Kaiserslautern, Kaiserslautern, Germany

  Gevorg Hunanyan

Gevorg Hunanyan completed his doctoral dissertation under the supervision of Prof. Dr. Jan Wenzelburger at the Technische Universität Kaiserslautern at the Chair of Macroeconomics.

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