Rahi, Rohit and Zigrand, Jean-Pierre (2007) Strategic financial innovation in segmented markets. Discussion paper, 595. Financial Markets Group, London School of Economics and Political Science, London, UK.
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We study a model with restricted investor participation in which strategic arbitrageurs reap profits by exploiting mispricings across different market segments. We endogenize the asset structure as the outcome of a security design game played by the arbitrageurs. The equilibrium asset structure depends realistically upon considerations such as depth and gains from trade. It is neither complete nor socially optimal in general; the degree of inefficiency depends upon the heterogeneity of investors.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2007 The Authors|
|Library of Congress subject classification:||H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|Journal of Economic Literature Classification System:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets
|Sets:||Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
|Date Deposited:||16 Jul 2009 14:08|
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