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Equilibrium asset pricing with systemic risk

Danielsson, Jon and Zigrand, Jean-Pierre ORCID: 0000-0002-7784-4231 (2008) Equilibrium asset pricing with systemic risk. Economic Theory, 35 (2). pp. 293-319. ISSN 1432-0479

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Identification Number: 10.1007/s00199-007-0238-3


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: Article
Official URL:
Additional Information: © Springer-Verlag 2007
Divisions: Finance
Financial Markets Group
Subjects: H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D50 - General
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
Date Deposited: 12 Aug 2009 09:41
Last Modified: 05 Jan 2024 00:21

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