Strategic Financial Innovation in Segmented Markets
AbstractWe 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.Journal of Economic Literature classification numbers: G12, D52.Keywords: Security design, arbitrage, intermediation, market segmentation.
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp595.
Date of creation: Sep 2007
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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.
- Rahi, Rohit & Zigrand, Jean-Pierre, 2004. "Strategic Financial Innovation in Segmented Markets," CEPR Discussion Papers 4176, C.E.P.R. Discussion Papers.
- Jean-Pierre Zigrand & Rohit Rahi, 2004. "Strategic Financial Innovation in Segmented Markets," FMG Discussion Papers dp520, 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-2007-11-17 (All new papers)
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- Hara, Chiaki, 2011. "Pareto improvement and agenda control of sequential financial innovations," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 336-345.
- Chiaki Hara, 2010. "Pareto Improvement and Agenda Control of Sequential Financial Innovations," KIER Working Papers 748, Kyoto University, Institute of Economic Research.
- 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.
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