Danielsson, Jon 
ORCID: 0009-0006-9844-7960 and Zigrand, Jean-Pierre ORCID: 0000-0002-7784-4231
(2006)
Equilibrium asset pricing with systemic risk.
Financial Markets Group Discussion Papers (561).
Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
We provide an equilibrium multi-asset pricing model with micro-founded systemic risk and heterogeneous investors. Systemic risk arises due to excessive leverage and risk taking induced by free-riding externalities. Global risk-sensitive financial regulations are introduced with a view of tackling systemic risk, with Value-at-Risk a key component. The model suggests that risk sensitive regulation can lower systemic risk in equilibrium, at the expense of poor risk-sharing, an increase in risk premia, higher and asymmetric asset volatility, lower liquidity, more comovement in prices, and the chance that markets may not clear.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | https://www.fmg.ac.uk/ |
| Additional Information: | © 2006 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D50 - General G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation G - Financial Economics > G2 - Financial Institutions and Services > G20 - General |
| Date Deposited: | 16 Jul 2009 14:34 |
| Last Modified: | 01 Oct 2024 04:03 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24515 |
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