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Strategic financial innovation in segmented markets

Rahi, Rohit ORCID: 0000-0001-6887-9160 and Zigrand, Jean-Pierre ORCID: 0000-0002-7784-4231 (2004) Strategic financial innovation in segmented markets. Financial Markets Group Discussion Papers (520). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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We study an equilibrium model with restricted investor participation in which strategic arbitrageurs reap profits by exploiting mispricings across different trading locations. We edogonize the asset structure as the outcome of the security design game played by the arbitrageurs. The equilibrium asset structure depends realistically upon consideration such as depth, liquidity and gains from trade. It is not socially optimal in general; the degree of inefficiency depends upon the heterogeneity of investors. Finally we use this framework to formally analyse Shiller's conjecture of the optimality 'macro markets'.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2004 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - 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: 06 Aug 2009 16:09
Last Modified: 15 Sep 2023 22:58

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