Why do markets freeze?

Why do markets freeze?

In normal times, investors buy and sell financial assets because there are gains from trade. However, markets do not always function properly--they sometimes "freeze." An example is the collapse of trading in mortgagebacked securities during the recent financial crisis. Why does trade brea...

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Veröffentlicht in:Business Review - Federal Reserve Bank of Philadelphia 2011-06, p.12
1. Verfasser: Leitner, Yaron
Format: Artikel
Sprache:eng
Schlagworte:
Bank assets
Banking industry
Economic crisis
Financial markets
Mortgage backed securities
Prices and rates
Securities markets
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Beschreibung
Zusammenfassung:In normal times, investors buy and sell financial assets because there are gains from trade. However, markets do not always function properly--they sometimes "freeze." An example is the collapse of trading in mortgagebacked securities during the recent financial crisis. Why does trade break down despite the potential gains from trade.7 Can the government intervene to restore the normal functioning of markets? In this article, Yaron Leitner explains what a market freeze is and some of the theories as to why these freezes occur.
ISSN:0007-7011
2163-4440