Study On Financial Leverage’s Impacting On The Volatility Of The Asset Price

The global financial crisis in2008is the most serious financial crisis. A group of economists think that the main cause of the crisis is the over-degree of financial leverage Geanakoplos studying the effect of leverage to the financial crisis, points out that there are a relationship between the leverage cycle and asset price.This article attempts to explore how the financial leverage effects on asset prices fluctuation by Agent-based Computational method. It constructs heterogeneous investors artificial stock market with Netlogo software. The article has three heterogeneous investors, such as noise traders, value traders and indirect traders. Noise traders’strategies make the asset prices randomly fluctuate around the value. Value investors can buy more assets than their wealth can buy through leverage according to asset mispricing signal. Indirect investors give or withdraw money from value investors according to the history performance of value investors. Studies have found that when the value investors can buy more assets through leverage, asset prices yields appeared fat tail phenomenon and the volatility clustering. and with the increase of leverage limits, this phenomenon is more obvious. Under the good condition of the market, value investors could suppress price fluctuations; If one or more funds are at the same state of maximum leverage limits, once the fluctuations in asset prices have a downward trend, value investors will sell assets to cover the deposit and the price will fall lower and lower. The small scope of the risk aversion measures lead to systemic risk.This article shows that risk management in financial markets, should not only pay attention to the micro prudent management, but also to prevent systemic risk. It can give the advice about setting a reasonable margin system and dynamic security monitoring system for our national financial markets.