Liquidity Shocks, Systemic Risk, and Market Collapse: Theory and Application to the Market for Perps

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 fundamental values and information is shared symmetrically among all market participants. We present a model in which markets crash when investors shift their beliefs about the liquidity of the secondary market. While such shifts in liquidity may be a factor in explaining many market crashes, the collapse of the market for perpetual floating-rate notes (perps) provides an especially clear illustration of the theory because a shift in liquidity beliefs appears to have been the sole determinant of the market crash. Such a shift can be precipitated by a systemic liquidity shock that is transitory or permanent. The latter proved to be the case with perps because perceptions of the liquidity of the secondary market were permanently altered. In addition to providing new insights into why markets crash, our findings are particularly relevant for unseasoned financial products that are often priced and marketed on the assumption that liquid secondary markets will develop. The perp episode also highlights the importance of broad placement of securities. Since market liquidity arises endogenously from the diversity of liquidity needs across the investor base, the broader the investor base, the lower the probability of a systemic liquidity shock. We also show how simple modifications in security design can mitigate the impact of such a shock should it occur.

Self Consistent Expansion for the Molecular Beam Epitaxy Equation

Motivated by a controversy over the correct results derived from the dynamic renormalization group (DRG) analysis of the non linear molecular beam epitaxy (MBE) equation, a self-consistent expansion (SCE) for the non linear MBE theory is considered. The scaling exponents are obtained for spatially correlated noise of the general form $D({\vec r - \vec r',t - t'}) = 2D_0 | {\vec r - \vec r'} |^{2\rho - d} \delta ({t - t'})$. I find a lower critical dimension $d_c (\rho) = 4 + 2\rho$, above, which the linear MBE solution appears. Below the lower critical dimension a r-dependent strong-coupling solution is found. These results help to resolve the controversy over the correct exponents that describe non linear MBE, using a reliable method that proved itself in the past by predicting reasonable results for the Kardar-Parisi-Zhang (KPZ) system, where DRG failed to do so.Comment: 16 page

The blurring boundaries between synchronicity and asynchronicity:new communicative situations in work-related Instant Messaging

Instant messaging is one of the most popular communication technologies in virtual teams, enabling interactions to intertwine whole working days, thus creating the sense of copresence for team members who are geographically dispersed. Through close linguistic analyses of naturally occurring data from a virtual team, this article discusses the implications of two novel communicative situations enabled by instant messaging: presence information and the persistence of transcript. The preliminary findings of this study indicate that these new communicative situations require the flouting or rethinking of previously existing interactional norms and that communicative practices employed by the team members are not yet conventionalized/normalized, the expectations and interpretations of interactional rituals and timing vary highly, even within the same virtual team

Management considerations in beef heifer development (2002)

Because decisions about selecting and managing replacement beef heifers can affect the future productivity of an entire cowherd, programs to develop breeding heifers have focused on the physiological processes that influence puberty. The timing of puberty is critical to whether a heifer remains in the herd and whether lifetime productivity is optimized.New 6/97; Reviewed and reprinted 10/02/5M

Out-of-plane nesting driven spin spiral in ultrathin Fe/Cu(001) films

Epitaxial ultrathin Fe films on fcc Cu(001) exhibit a spin spiral (SS), in contrast to the ferromagnetism of bulk bcc Fe. We study the in-plane and out-of-plane Fermi surfaces (FSs) of the SS in 8 monolayer Fe/Cu(001) films using energy dependent soft x-ray momentum-resolved photoemission spectroscopy. We show that the SS originates in nested regions confined to out-of-plane FSs, which are drastically modified compared to in-plane FSs. From precise reciprocal space maps in successive zones, we obtain the associated real space compressive strain of 1.5+-0.5% along c-axis. An autocorrelation analysis quantifies the incommensurate ordering vector q=(2pi/a)(0,0,~0.86), favoring a SS and consistent with magneto-optic Kerr effect experiments. The results reveal the importance of in-plane and out-of-plane FS mapping for ultrathin films.Comment: 4 pages, 3 figure

Accretion in Protoplanetary Disks by Collisional Fusion

The formation of a solar system is believed to have followed a multi-stage process around a protostar. Whipple first noted that planetesimal growth by particle agglomeration is strongly influenced by gas drag; there is a "bottleneck" at the meter scale with such bodies rapidly spiraling into the central star, whereas much smaller or larger particles do not. Thus, successful planetary accretion requires rapid planetesimal growth to km scale. A commonly accepted picture is that for collisional velocities $V_c$ above a certain threshold collisional velocity, ${V_{th}} \sim$ 0.1-10 cm s$^{-1}$, particle agglomeration is not possible; elastic rebound overcomes attractive surface and intermolecular forces. However, if perfect sticking is assumed for all collisions the bottleneck can be overcome by rapid planetesimal growth. While previous work has dealt explicitly with the influences of collisional pressures and the possibility of particle fracture or penetration, the basic role of the phase behavior of matter--phase diagrams, amorphs and polymorphs--has been neglected. Here it is demonstrated that novel aspects of surface phase transitions provide a physical basis for efficient sticking through collisional melting or amphorph-/polymorphization and fusion to extend the collisional velocity range of primary accretion to $\Delta V_c \sim$ 1-100 m s$^{-1}$, which bound both turbulent RMS speeds and the velocity differences between boulder sized and small grains $\sim$ 1-50 m s$^{-1}$. Thus, as inspiraling meter sized bodies collide with smaller particles in this high velocity collisional fusion regime they grow rapidly to km scales and hence settle into stable Keplerian orbits in $\sim$ 10$^5$ years before photoevaporative wind clears the disk of source material.Comment: 11 pages, 7 figures, 1 tabl

Direct Statistical Simulation of Jets and Vortices in 2D Flows

In this paper we perform Direct Statistical Simulations of a model of two-dimensional flow that exhibits a transition from jets to vortices. The model employs two-scale Kolmogorov forcing, with energy injected directly into the zonal mean of the flow. We compare these results with those from Direct Numerical Simulations. For square domains the solution takes the form of jets, but as the aspect ratio is increased a transition to isolated coherent vortices is found. We find that a truncation at second order in the equal-time but nonlocal cumulants that employs zonal averaging (zonal CE2) is capable of capturing the form of the jets for a range of Reynolds numbers as well as the transition to the vortex state, but, unsurprisingly, is unable to reproduce the correlations found for the fully nonlinear (non-zonally symmetric) vortex state. This result continues the program of promising advances in statistical theories of turbulence championed by Kraichnan

Eulerian spectral closures for isotropic turbulence using a time-ordered fluctuation-dissipation relation

Procedures for time-ordering the covariance function, as given in a previous paper (K. Kiyani and W.D. McComb Phys. Rev. E 70, 066303 (2004)), are extended and used to show that the response function associated at second order with the Kraichnan-Wyld perturbation series can be determined by a local (in wavenumber) energy balance. These time-ordering procedures also allow the two-time formulation to be reduced to time-independent form by means of exponential approximations and it is verified that the response equation does not have an infra-red divergence at infinite Reynolds number. Lastly, single-time Markovianised closure equations (stated in the previous paper above) are derived and shown to be compatible with the Kolmogorov distribution without the need to introduce an ad hoc constant.Comment: 12 page