Distress Selling and Asset Market Feedback


Ilhyock Shim, Economist, Representative Office for Asia and the Pacific, Bank for International Settlements, 78/F Two International Finance Center, 8 Finance Street, Central, Hong Kong; Tel: +852-2878-7147; Fax: +852-2878-7123; E-mail: ilhyock.shim@bis.org


This paper examines the process of distress selling and asset market feedback. It splits this process into several stages, in order to analyze what triggers distress selling, why asset prices fall, and how falling prices generate additional rounds of selling. This framework enables us to understand and compare models relevant to distress selling from diverse literatures. The paper also considers what policy options are available at each stage to mitigate the adverse economic consequences of distress selling and asset market feedback.