Traditional explanations of market crashes rely on the collapse of an asset price bubble or the exacerbation of an information asymmetry sufficient to cause less-informed participants to withdraw from the market. We show that markets can crash even though asset prices have not deviated from...

We show how a high degree of commonality in investor liquidity shocks can diminish incentives for intermediaries to keep markets open and lead to market collapse, even without information asymmetry or news affecting fundamentals. We motivate our model using the perpetual floating-rate note...

We show how a high degree of commonality in investor liquidity shocks can diminish incentives for intermediaries to keep markets open and lead to market collapse, even without information asymmetry or news affecting fundamentals. We motivate our model using the perpetual floating rate note...

We study the collapse of the market for perpetual floating rate notes (perps). The perp market was launched in 1984, and its first two years were characterized by explosive growth in which issues by high quality borrowers were placed with institutional investors and traded in liquid secondary...