Empirical tests on margin debt and equity drawdowns support that risk exposures contract multiplicatively in stress regimes and recover additively in calm regimes, leading to longer recovery times for deeper crashes.
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Multiplicative Contractions, Additive Recoveries: Functional-Form Restrictions on Risk Exposure Dynamics
Empirical tests on margin debt and equity drawdowns support that risk exposures contract multiplicatively in stress regimes and recover additively in calm regimes, leading to longer recovery times for deeper crashes.