Reports from National Chung Hsing University Advance Knowledge in Risk Management (Leaning against the Bubble: Central Bank Intervention in Walrasian Asset Markets): Insurance – Risk Management

Insurance Daily News

2022 JAN 10 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Data detailed on insurance have been presented. According to news reporting out of Taichung, Taiwan, by NewsRx editors, research stated, “The paper presents a two-period Walrasian financial market model composed of informed and uninformed rational investors, and noise traders.”

The news journalists obtained a quote from the research from National Chung Hsing University: “The rational investors maximize second period consumption utility from the payoffs of trading risk-free holdings to risky assets in the first period. The central bank reacts directly to asset price movements by selling or buying assets to stabilize the market price. It is found that the intervention makes the risky asset’s market price per share less sensitive to information shocks, which presses the market price towards its average price thus reducing price variance. The informed investors’ prediction coefficient remains unaffected, but that of the uninformed investors is magnified, which cancels out the negative effect on shock sensitivity thus keeping the expected value of the risky asset’s dividend constant. Finally, the introduction of the policy rule does not affect rational investors’ risk per share.”

According to the news reporters, the research concluded: “A general conclusion is that the central bank’s policy can be regarded as an effective automatic stabilizer of financial markets.”

For more information on this research see: Leaning against the Bubble: Central Bank Intervention in Walrasian Asset Markets. Risks, 2021,9(214):214. (Risks - http://www.mdpi.com/journal/risks). The publisher for Risks is MDPI AG.

A free version of this journal article is available at https://doi.org/10.3390/risks9120214.

Our news editors report that additional information may be obtained by contacting Chia-Lin Chang, Department of Applied Economics, National Chung Hsing University, Taichung 402, Taiwan. Additional authors for this research include Jukka Ilomaki, Hannu Laurila.