Thismodelis independentof the hypothesisofstockelementaryvalue and effectivemarket, and canexplain the phenomenonofinvalidmarketproposed by prevailingfinance.
Mr Isaac reckons that many of the measures that were introduced to instil discipline notably fair-value accounting, which forces banks to mark assets to the prevailingmarket price actually exacerbated the latest crisis.
If all or many investors redeem at the same time, the fund will be forced to sell securities at fire sale prices, causing the fund to break a dollar, but also depressing prevailingmarket prices and thereby placing pressure on the ability of other funds to maintain a stable net asset value.