Strategic Financial Innovation in Segmented Markets
AbstractWe analyse an equilibrium model with restricted investor participation in which strategic arbitrageurs play an innovation game and exploit the resulting mispricings by reaping trading profits. Since the equilibrium asset structure is not chosen by a social planner, it is chosen to maximize arbitrage profits and depends therefore realistically upon considerations such as depth, liquidity and gains from trade. In addition, the welfare properties of the resulting asset structure are studied. It is shown that the degree of inefficiency depends upon the heterogeneity of investors. The conjecture of the optimality of ‘Macro Markets’ is analysed formally in this framework.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4176.
Date of creation: Jan 2004
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Other versions of this item:
- Rohit Rahi & Jean-Pierre Zigrand, 2009. "Strategic Financial Innovation in Segmented Markets," Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 2941-2971, August.
- Jean-Pierre Zigrand & Rohit Rahi, 2004. "Strategic Financial Innovation in Segmented Markets," FMG Discussion Papers dp520, Financial Markets Group.
- Jean-Pierre Zigrand & Rohit Rahi, 2007. "Strategic Financial Innovation in Segmented Markets," FMG Discussion Papers dp595, Financial Markets Group.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-29 (All new papers)
- NEP-CFN-2004-02-29 (Corporate Finance)
- NEP-FMK-2004-02-29 (Financial Markets)
- NEP-MIC-2004-02-29 (Microeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Hara, Chiaki, 2011. "Pareto improvement and agenda control of sequential financial innovations," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 336-345.
- Thorsten Beck & Tao Chen & Chen Lin & Frank M. Song, 2012. "Financial Innovation: The Bright and the Dark Sides," Working Papers 052012, Hong Kong Institute for Monetary Research.
- Chiaki Hara, 2010. "Pareto Improvement and Agenda Control of Sequential Financial Innovations," KIER Working Papers 748, Kyoto University, Institute of Economic Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.