Financial leverage fluctuations and their role in financial crisis

The stability of the financial market largely depends not on the interest rate variations caused by the interaction of supply and demand, but by the financial leverage. The fluctuations of the financial leverage are caused by loss aversion, a phenomenon that leads to irrational behavior of investors. The financial leverage is cyclical. Excessive investor optimism leads to the fact that they miss the transition of the market into a phase of decline, which in turn can cause a financial crisis.