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Conference Proceedings (1997), 14e Conference Internationale de Finance, Association Française de Finance (AFFI), pp. 1-25

Stop-loss Strategies, Market Volatility and Crashes

Using a simple model with two groups of agents, risk-averse mean-variance and stop-loss investors, we find that active selling by the latter causes price instability and may cause crashes , moreover, even in the absence of active trading on their part, their presence increases the volatility and decreases the equilibrium price in the periods preceding their possible activity.

CHARLETY-LEPERS, P. and PORTAIT, R. (1997). Stop-loss Strategies, Market Volatility and Crashes. In: 14e Conference Internationale de Finance. Association Française de Finance (AFFI), pp. 1-25.