Compose a 1500 words assignment on why markets crash without fundamental news. Needs to be plagiarism free!

Compose a 1500 words assignment on why markets crash without fundamental news. Needs to be plagiarism free! The aim of this paper is to explain why markets can crash without fundamental news using models from available literature.

According to Frankel markets do crash without fundamental news because of the interaction of coherent investors with naive investors. In particular, the naive traders tend to deem that prices will observe a random-walk but with in-succession correlated volatility. Such traders envisage that future volatility will adjust as weighted averages of up-to-the-minute squared price variations. Therefore, their hope is that future volatility will be generated adaptively. That’s why when the market collapses, the naive traders will sell their stocks in reaction to perceptible or perceived boost in volatility. On the other hand, given that rational traders tend to be risk averse, any lowering of stock prices will be deemed as necessary in order to crumble the market. Such traders envisage future volatility through the application of other rational investor’s knowledge and strategies. Hence, to Frankel market crashes without fundamental news are self-fulfilling prediction and frenzies cannot take place in such a representatio.

Rational investors examine any common signal which acts as a form of coordinating mechanism, and for any given value of such signals, the traders tend to reduce the price they bid, which in the end results in plummeting of prices. Such quick price changes increases the naive investor’s judgment of risk, and given that naïve investors are unenthusiastic to risks, they then shy off from the market. This then results in a crash that reflects a self-fulfilling prediction for the rational investors.&nbsp.