Abstract
We present a model for stock price and volume behavior during market panic conditions. The model incorporates a mechanism for the share exchange between buyers and sellers while taking into account their cash balances. We analytically show that during market crises, trading volume is inversely proportional to the square of the stock price. This result is empirically supported in price and volume data for major recent US stock bankruptcies, including Lehman Brothers Inc, Enron, Wachovia, Washington Mutual, and MF Global.
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