3 Matching Annotations
  1. Aug 2020
  2. Jun 2019
    1. volatility and leverage are co-determined and arepro-cyclical; that is, together, they amplify the impact ofshocks. The mechanism, to be specific, is that decliningvolatility reduces the cost of taking on more leverage andfurthers a buildup of risk. The lesson: Risk managers mustresist the temptation to sell volatility when it is low andfalling. The AMH implicitly embraces modeling suchbehavior with heterogeneous agents that use heuristics.