4 ms·

I thought I understood briefly...I don't anymore. I think the part that is confusing is the 50% part...50% of what? But I am right in saying that the drop in as

• jacobr1 5y ago
  There is not measurement of a "market drop," only a decrease in the equities in the account - this includes BOTH the sale and the market loss. Here is an example: Month 0 STOCKS: $100 CASH: $0 Month 1 STOCKS $10 CASH $65 The account holder had their equity holding decrease by 90%. But that is composed of a market loss of $35 and their sale proceeds of $65. 65 / 90 = 72% (which is greater than 50% of the total decrease). The 50% filter explicitly excludes those that just have market losses, the trader needs to have actively sold between 45-100% of their account value, combined with market losses between 0-45% for a total decrease of 90-100% between both factors.
  • hogFeast 5y ago
    Ah, that makes sense. So it is any decline in equity assets through which the rate of selling is faster than the decline in the underlying assets (presumably...if the rate of selling was slower then the ratio would be less than 50%?). I still have the same problem. The reason cycles cycle is because of the movement in money demand...which tend to be correlated to everything else. Being able to predict who will panic-sell could be correlated to other things (always a problem in financial economics). I will need the read paper properly but would be interested to see how they deal with cash coming into and out of the account.